Refinancing cross-subsidies in the mortgage market

Jack Fisher, Alessandro Gavazza, Lu Liu, Tarun Ramadorai and Jagdish Tripathy

Journal of Financial Economics, 2024, vol. 158, issue C

Abstract: In household finance markets, inactive households can implicitly cross-subsidize active households who promptly respond to financial incentives. We assess the magnitude and distribution of cross-subsidies in the mortgage market. To do so, we build a structural model of household mortgage refinancing and estimate it on rich administrative data covering the stock of outstanding mortgages in the UK. We estimate sizeable cross-subsidies that flow from relatively poorer households and those located in less-wealthy areas towards richer households and those located in wealthier areas. Our work highlights how the design of household finance markets can contribute to wealth inequality.

Keywords: Mortgages; Refinancing; Cross-subsidies; Wealth inequality; Household inaction and inertia; Household finance (search for similar items in EconPapers)
JEL-codes: G21 G50 L51 N20 R21 R31 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Refinancing cross-subsidies in the mortgage market (2024)
Working Paper: Refinancing Cross-Subsidies in the Mortgage Market (2022)
Working Paper: Refinancing cross-subsidies in the mortgage market (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:158:y:2024:i:c:s0304405x24000990

DOI: 10.1016/j.jfineco.2024.103876

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