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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 Martins
  • 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 a large program that subsidized mortgage interest rates on long-term household debt. The reform established a ceiling in the price of the house that could be Þnanced through the program, and provides plau- sibly exogenous variation in incentives. Using a unique dataset of matched household survey data and administrative records of debt, we document that loss of access to the subsidy decreased the probability of signing a new loan.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%2026_tcm46-146683.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 026.

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Date of creation: Jan 2005
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Handle: RePEc:dnb:dnbwpp:026
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Keywords: Consumer Borrowing; Mortgage interest rate subsidies; Quasi-natural;

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Find related papers by JEL classification:
  • D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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  1. Tullio Jappelli & Luigi Pistaferri, 2001. "Tax Incentives and the Demand for Life Insurance: Evidence from Italy," CSEF Working Papers 52, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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  17. Jappelli, Tullio & Pistaferri, Luigi, 2004. "Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms," CEPR Discussion Papers 3903, C.E.P.R. Discussion Papers.
  18. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:

  1. Nuno Martins & Ernesto Villanueva, 2006. "Does limited access to mortgage debt explain why young adults live with their parents?," Working Papers 0628, Banco de España;Working Papers Homepage.
  2. Meng, Xianming & Hoang, Nam T. & Siriwardana, Mahinda, 2013. "The determinants of Australian household debt: A macro level study," Journal of Asian Economics, Elsevier, vol. 29(C), pages 80-90.
  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.
  4. repec:hhs:bofrdp:2007_005 is not listed on IDEAS
  5. 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.

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