Taxation and Debt Financing of Home Acquisition: Evidence from the Finnish 1993 Tax Reform
The 1993 Finnish tax reform reduced the incentives to use debt financing in home acquisition for high-income households. Before the reform mortgage interest was deductible according to a progressive schedule creating a so-called upside-down effect, which means that the benefit from the deduction was the greater the higher was taxpayer?s income. After the reform, the deduction is made according to a flat schedule, and thus, the size of the benefit no longer depends on taxpayer?s income. We use household level data from the Income Distribution Survey of Statistics Finland to study whether high-income households have responded to the reform. Using tobit, Heckman and two-part model on repeated cross-sectional data from 1990?2000 we find that the probability of having a mortgage debt is clearly less dependent on the income of household?s head after the tax reform. This income variable measures the tax deduction effect and we conclude that the 1993 tax reform was behind the observed behavioural change. The results for the amount of mortgage debt conditional on a positive amount are more ambiguous. It seems that the tax reform had no or very little effect on the demand for the amount of mortgage debt.
|Date of creation:||06 Apr 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +358 295 519 400
Fax: +358 295 519 599
Web page: http://www.vatt.fi/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Angrist, Joshua D, 2001.
"Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 19(1), pages 2-16, January.
- Joshua Angrist, 1999. "Estimation of Limited-Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Working papers 99-31, Massachusetts Institute of Technology (MIT), Department of Economics.
- Joshua D. Angrist, 2000. "Estimation of Limited-Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," NBER Technical Working Papers 0248, National Bureau of Economic Research, Inc.
- Triest, Robert K., 1998. "Econometric Issues in Estimating the Behavioral Response to Taxation: A Nontechnical Introduction," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 761-72, December.
- James M. Poterba, 2001. "Taxation and Portfolio Structure: Issues and Implications," NBER Working Papers 8223, National Bureau of Economic Research, Inc.
- Jones, Lawrence D., 1995. "Net wealth, marginal tax rates and the demand for home mortgage debt," Regional Science and Urban Economics, Elsevier, vol. 25(3), pages 297-322, June.
- Erik Fj�rli, 2004. "Tax Reform and the Demand for Debt," International Tax and Public Finance, Springer, vol. 11(4), pages 435-467, 08.
- James R. Follain, 1990. "Mortgage Choice†," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(2), pages 125-144.
- Heckman, James J, 1979.
"Sample Selection Bias as a Specification Error,"
Econometric Society, vol. 47(1), pages 153-61, January.
- Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
- Dean M. Maki, 2001. "Household Debt and the Tax Reform Act of 1986," American Economic Review, American Economic Association, vol. 91(1), pages 305-319, March.
- Ling, David C. & McGill, Gary A., 1998. "Evidence on the Demand for Mortgage Debt by Owner-Occupants," Journal of Urban Economics, Elsevier, vol. 44(3), pages 391-414, November.
- McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
- Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-44, September.
- Maki, Dean M., 1996. "Portfolio Shuffling and Tax Reform," National Tax Journal, National Tax Association, vol. 49(3), pages 317-29, September.
- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
- Brueckner, Jan K., 1994. "The Demand for Mortgage Debt: Some Basic Results," Journal of Housing Economics, Elsevier, vol. 3(4), pages 251-262, December.
When requesting a correction, please mention this item's handle: RePEc:fer:dpaper:366. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anita Niskanen)
If references are entirely missing, you can add them using this form.