The Impact of Interest-rate Subsidies on Long-term Household Debt: Evidence from a Large Program

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The Impact of Interest-rate Subsidies on Long-term Household Debt: Evidence from a Large Program

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Nuno C. Martins
Ernesto Villanueva

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Ernesto Villanueva

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 Credito Bonificado, a large program in Portugal that subsidized mortgage interest rates, on long-term household debt. The reform established a ceiling in the price of the house that could be financed through the program, and provides plausibly exogenous variation in incentives. Using a unique dataset of matched household survey data and administrative records of debt, we document a large decrease in the probability of signing a new loan after the removal of the subsidy.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 713.

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Date of creation: Oct 2003
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Handle: RePEc:upf:upfgen:713

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Paper
- Nuno Martins & Ernesto Villanueva, 2005. "The impact of interest-rate subsidies on long-term household debt: evidence from a large program," DNB Working Papers 026, Netherlands Central Bank, Research Department. [Downloadable!]

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-2004-05-26 (All new papers)
NEP-EEC-2004-05-16 (European Economics)

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Full references

Cited by:
(explanations, 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.)

Nuno Martins & Ernesto Villanueva, 2006. "Does limited access to mortgage debt explain why young adults live with their parents?," Banco de EspaÃ±a Working Papers 0628, Banco de España. [Downloadable!]
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. [Downloadable!]

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