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Abstract

The responsiveness of long-term household debt to the interest rate is a crucial parameter for assessing the effectiveness of public policies aimed at promoting specific types of saving. This paper estimates the effect of a reform of a large program that subsidized mortgage interest rates on long-term household debt. The reform established a ceiling in the price of the house that could be �nanced through the program, and provides plau- sibly exogenous variation in incentives. Using a unique dataset of matched household survey data and administrative records of debt, we document that loss of access to the subsidy decreased the probability of signing a new loan.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 026.

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Date of creation: Jan 2005
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Handle: RePEc:dnb:dnbwpp:026

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Related research

Keywords: Consumer Borrowing; Mortgage interest rate subsidies; Quasi-natural;

Other versions of this item:

Find related papers by JEL classification:

• D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
• E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
• H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

This paper has been announced in the following NEP Reports:

• NEP-ALL-2005-01-16 (All new papers)
• NEP-MIC-2005-01-16 (Microeconomics)
• NEP-PBE-2005-01-16 (Public Economics)

References

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Citations

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Cited by:

1. Nuno Martins & Ernesto Villanueva, 2006. "Does limited access to mortgage debt explain why young adults live with their parents?," Banco de España Working Papers 0628, Banco de España.
2. 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.
3. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland – estimations and simulations with micro data," Research Discussion Papers 5/2007, Bank of Finland.

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