=+2.17*†

Policy Application: Tax Deductions and Tax Credits: In the U.S. income tax code, a number of expenditures are “deductible.” For most tax payers, the largest tax deduction comes from the portion of the income tax code that permits taxpayers to deduct home mortgage interest (on both a primary and a vacation home). This means that taxpayers who use this deduction do not have to pay income tax on the portion of their income that is spent on paying interest on their home mortgage(s). For purposes of this exercise, assume that the entire yearly price of housing is interest expense.