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Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms

Before 1992 mortgage interest in Italy was fully tax deductible up to 3,500 Euro (7,000 for two cosigners). In 1992-94 the government implemented a series of tax reforms whose ultimate effect was to cancel the relation between the after-tax mortgage rate and the marginal tax rate. Using data from the 1987-2000 Survey of Household Income and Wealth we test if the cancellation of incentives has reduced the propensity to borrow of high-income taxpayers relative to the other population groups. Difference-in-differences estimates and regression analysis indicate that tax considerations have not affected the demand for mortgage debt, either at the extensive or intensive margin.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 90.

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Date of creation: 02 Dec 2002
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Publication status: Published in European Economic Review, February 2007, vol. 51, issue 2, pages 247-273
Handle: RePEc:sef:csefwp:90
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  1. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
  2. repec:att:wimass:9304 is not listed on IDEAS
  3. James M. Poterba, 2001. "Taxation and Portfolio Structure: Issues and Implications," NBER Working Papers 8223, National Bureau of Economic Research, Inc.
  4. Patric H. Hendershott & Dr. Gwilyn Pryce & Dr. Michael White, 2002. "Household Leverage and the Deductibility of Home Mortgage Interest: Evidence from UK House Purchasers," NBER Working Papers 9207, National Bureau of Economic Research, Inc.
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