A number of European countries changed their tax system in the early 1990s along the lines of the US tax reform act of 1986. After the reforms marginal tax rates were generally lower, and mortgage interest deductions less generous. At the same time a long period of house appreciation started in most countries. This paper considers this puzzle empirically using a rich data base of Norwegian tax records from 1986 to 2000. We use nonparametric, difference in difference and tobit approaches in attempt to control for a wide array of factors that may offset, or mask, response to changed incentives. Of special concern is possible credit constrains as implied by credit score models routinely applied by credit institutions. We find a surprisingly static relationship between the probability of debt across age groups, and a strikingly linear and unchanged relationship between debt and gross income for young households. After the reform house prices doubled and tripled. The wealth effect may spur consumption. We find no sign of consumption smoothing by using self-owned housing as debt collateral, not even for older households. On the contrary, older households did react to the reform by reducing real debt.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number
492.
Find related papers by JEL classification: D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: