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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 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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Bibliographic Info

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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Web page: http://www.econ.upf.edu/

Related research

Keywords: Consumer borrowing; subsidies; quasi-natural experiment;

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

References

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Citations

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Cited by:

1. 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.
2. 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.
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.

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