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The impact of interest-rate subsidies on long-term household debt: evidence from a large program

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Listed author(s):
  • 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: https://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
Handle: RePEc:dnb:dnbwpp:026
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Keywords: Consumer Borrowing; Mortgage interest rate subsidies; Quasi-natural;

Other versions of this item:

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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  11. Orazio P. Attanasio & Pinelopi Koujianou Goldberg & Ekaterini Kyriazidou, 2008. "Credit Constraints In The Market For Consumer Durables: Evidence From Micro Data On Car Loans," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 401-436, 05.
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  13. Bernheim, B. Douglas, 2002. "Taxation and saving," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 18, pages 1173-1249 Elsevier.
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  16. Jappelli, Tullio & Pistaferri, Luigi, 2003. "Tax incentives and the demand for life insurance: evidence from Italy," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1779-1799, August.
  17. Robert J.Gary-Bobo & Sophie Larribeau, 2003. "The bank's market power and the interest rate elasticity of demand for housing: an econometric discrimination on french mortgage data," THEMA Working Papers 2003-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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  19. Gary V. Engelhardt, 1996. "Tax Subsidies and Household Saving: Evidence from Canada," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1237-1268.
  20. Tullio Jappelli & Luigi Pistaferri, 2002. "Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms," CSEF Working Papers 90, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  21. Eric M. Engen & William G. Gale, 2000. "The Effects of 401(k) Plans on Household Wealth: Differences Across Earnings Groups," NBER Working Papers 8032, National Bureau of Economic Research, Inc.
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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. 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.
  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. 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.

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