Abstract
This paper examines the effect of housing leverage on the mobility of homeowners. We exploit a policy innovation in the form of the Tax Reform Act, 1986 (TRA) to address an increase in housing leverage. The TRA eliminated the tax deductibility on all personal loans except for interest payments on mortgage debt. This tax-shield encouraged homeowners to increase housing leverage by switching from unsecured to secured (mortgage) loan. Using PSID data for the period, 1983-1997, we find that the higher housing leverage due to the TRA constrains homeowner mobility. However, the TRA has no impact on renter mobility.
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