ABSTRACT
This chapter explains the Consumption Theory of Land Rent methodology is used to evaluate the effects that income taxes, interest rates, and mortgage interest deductions have upon the geography of the city. It examines the change in the geography of the city as a result of a change in two factors within the household budget constraint. Changes in market interest rates were contrasted with a public policy of deducting interest payments from gross income in order to derive a reduced taxable income. The more deductions, the lower will be the taxable income, marginal rate of taxation, and income taxes. Mortgage interest deductions, by reducing taxes, can free up income that, in turn, could be allocated to housing. A tax system that allows mortgage interest payments to be deducted from gross income in order to determine taxable income will be contrasted with a tax system that does not allow such deductions.
