Refinancing cross-subsidies in the mortgage market

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

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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: mortages; refinancing; cross-subsidies; wealth inequality; household inaction and inertia; household finance (search for similar items in EconPapers)
JEL-codes: G00 G21 L51 N20 R21 R31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2024-08-01
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-ure
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Published in Journal of Financial Economics, 1, August, 2024, 158. ISSN: 0304-405X

Downloads: (external link)
http://eprints.lse.ac.uk/123686/ Open access version. (application/pdf)

Related works:
Journal Article: 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:ehl:lserod:123686

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