Homeownership: Case Study

The intention of mortgage interest deduction is to promote homeownership. Increase in homeownership has wider societal benefits, for instance causing homeowners to improve the conditions of their homes and be more engaged in their neighborhoods than if they were only paying rents. Little of the benefits of deductions go to households that have homeownership problems. In fact, most homeowners face serious housing cost burdens, which mean that they are paying more than 50% of their earnings for housing. Estimates show that homeowners who earn less than $50,000 get only 3% of mortgage interest deduction benefits. At the same time, more than 70% of the mortgage interest deduction benefits go to homeowners receiving more than $100,000, and in this category almost nobody faces serious housing cost burdens (Alesina & Dani, 2011) About 35% of their benefits go to homeowners earning more than $200,000; this income category receives about $5,000 in subsidy.
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Each dollar spent by the government necessarily implies that a dollar less is spent in the productive economic sector. This diminishes growth because economics forces direct the resource allocations, within the private sector, while political forces dictate when bureaucrats and politicians decide amount to spend. Certain government spending, for example sustaining a proper-function legal system could have a greater return rate. However, in general the governments do not efficiently utilize resource which results into minimal economic output.
Government spending twists allocation of resources. Sellers and buyers in a competitive market decides prices in a process, which guarantees the best way of resource allocations, however certain government policies influence market competition (Aghion &Patrick, 2007). In education and health care for example, the government subsidies to cut out-of-pocket costs have resulted in third-party payer