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Housing subsidy or parental support: Crowding-out effect of mortgage tax deduction

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  • Iwata, Shinichiro
  • Yukutake, Norifumi
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    Abstract

    Children may receive monetary transfers from their parents to realize the dream of homeownership. This raises the question of whether transfers received decrease if governments also provide a homeownership-related subsidy. The purpose of this paper is to empirically examine this question, using a sample of the Japanese home-buying households that are subsidized by a mortgage tax deduction (MTD) as a model case. In the empirical stage, we offer a test of the effect of the MTD on both the extensive (the probability of receiving transfers) and the intensive (the amount of transfers received) margins using the overall sample as well as subsample groups. The empirical results, which use the full sample, appear to indicate that the MTD has a tendency to crowd out transfers on both the extensive and the intensive margins. Subsample analysis demonstrates that the crowding-out effect is strengthened when parents' behavior is influenced by a relatively strong altruistic motive and a relatively weak exchange motive.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46647.

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    Date of creation: Mar 2013
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    Handle: RePEc:pra:mprapa:46647

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    Keywords: intergenerational transfer; crowding out; mortgage tax deduction;

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    1. Ken Yamada, 2006. "Intra-family transfers in Japan: intergenerational co-residence, distance, and contact," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(16), pages 1839-1861.
    2. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1985. "The Strategic Bequest Motive," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(6), pages 1045-76, December.
    3. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
    4. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
    5. Gary V. Engelhardt & Christopher J. Mayer, 1994. "Gifts for home purchase and housing market behavior," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue May, pages 47-58.
    6. Andreja Cirman, 2008. "Intergenerational Transfers as a Response to Changes in the Housing Market in Slovenia," European Journal of Housing Policy, Taylor and Francis Journals, Taylor and Francis Journals, vol. 8(3), pages 303-315.
    7. Andreja Cirman, 2008. "Intergenerational Transfers as a Response to Changes in the Housing Market in Slovenia," International Journal of Housing Policy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(3), pages 303-315.
    8. Ting Yin, 2009. "Parent-Child Co-residence and Bequest Motives in China," Discussion Papers in Economics and Business, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) 09-26, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    9. Kristopher Gerardi & Yuping Tsai, 2010. "The effect of social entitlement programs on private transfers: new evidence of crowding out," Working Paper, Federal Reserve Bank of Atlanta 2010-15, Federal Reserve Bank of Atlanta.
    10. Juarez, Laura, 2009. "Crowding out of private support to the elderly: Evidence from a demogrant in Mexico," Journal of Public Economics, Elsevier, Elsevier, vol. 93(3-4), pages 454-463, April.
    11. Hanson, Andrew, 2012. "Size of home, homeownership, and the mortgage interest deduction," Journal of Housing Economics, Elsevier, Elsevier, vol. 21(3), pages 195-210.
    12. Cox, Donald, 1987. "Motives for Private Income Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 508-46, June.
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