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Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms

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  • Jappelli, Tullio
  • Pistaferri, Luigi

Abstract

Before 1992 mortgage interest in Italy was fully tax deductible up to 3,500 euro (7,000 for two cosigners). Between 1992-94 the government implemented a series of tax reforms whose ultimate effect was to cancel the relation between the after-tax mortgage rate and the marginal tax rate. Using data from the 1987-2000 Survey of Household Income and Wealth we test if the cancellation of incentives has reduced the propensity to borrow of high-income taxpayers relative to the other population groups. Difference-in-differences estimates and regression analysis indicate that tax considerations have not affected the demand for mortgage debt, either at the extensive or intensive margin.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3903.

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Date of creation: May 2004
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Handle: RePEc:cpr:ceprdp:3903

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Keywords: borrowing; mortgage debt; tax incentives;

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References

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  1. Scholz, J.K., 1993. "Tax Progressivity and Household Portfolio: Descriptive Evidence from the Surveys of Consumer Finances," Working papers 9304, Wisconsin Madison - Social Systems.
  2. James M. Poterba, 2001. "Taxation and Portfolio Structure: Issues and Implications," NBER Working Papers 8223, National Bureau of Economic Research, Inc.
  3. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Patric H. Hendershott & Dr. Gwilyn Pryce & Dr. Michael White, 2002. "Household Leverage and the Deductibility of Home Mortgage Interest: Evidence from UK House Purchasers," NBER Working Papers 9207, National Bureau of Economic Research, Inc.
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Cited by:
  1. Nuno C. Martins & Ernesto Villanueva, 2003. "The Impact of Interest-rate Subsidies on Long-term Household Debt: Evidence from a Large Program," Working Papers w200314, Banco de Portugal, Economics and Research Department.
  2. repec:dgr:uvatin:2007087 is not listed on IDEAS
  3. Martins, Nuno C. & Villanueva, Ernesto, 2006. "The impact of mortgage interest-rate subsidies on household borrowing," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1601-1623, September.
  4. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.
  5. Paiella, Monica & Pozzolo, Alberto Franco, 2007. "Choosing Between Fixed and Adjustable Rate Mortgages," Economics & Statistics Discussion Papers esdp07033, University of Molise, Dept. EGSeI.

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