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The Tax Reform Act of 1986 and the Composition of Consumer Debt

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  • Stango, Victor

Abstract

The Tax Reform Act of 1986 (TRA 86) phased out the deductibility of most nonmortgage interest and also introduced new marginal tax rates that reduced the tax advantage of all types of debt. I estimate that by 1991 aggregate mortgage debt was over 1 percent higher, credit card debt approximately 14 percent lower, and auto loan debt approximately 9 percent lower than they would have been without these changes. The results suggest that consumers attempted to minimize the effects of the deductibility phaseout by reallocating debt toward deductible instruments. Anecdotal evidence suggests that consumers used home equity lines to reallocate their debt.

Suggested Citation

  • Stango, Victor, 1999. "The Tax Reform Act of 1986 and the Composition of Consumer Debt," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(4), pages 717-740, December.
    • Handle: RePEc:ntj:journl:v:52:y:1999:i:4:p:717-40
    DOI: 10.1086/NTJ41789426
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    References listed on IDEAS

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    1. Barro, Robert J & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 56(4), pages 419-452, October.
    2. Barro, Robert J. & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rates from Social Security and the Individual Income Tax," Working Papers 29, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
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