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Mortgage debt and entrepreneurship

Philippe Bracke, Christian Hilber () and Olmo Silva

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

Abstract: We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where loans are recourse|like in the UK and several US states. Our model shows that as long as the mortgage interest rate exceeds the risk-free rate: (i) mortgage debt diminishes the likelihood of entrepreneurship by amplifying risk aversion; and (ii) the negative relation between mortgage debt and entrepreneurship increases with income volatility. Our model also shows that the link between housing equity and entrepreneurship is ambiguously signed because of competing portfolio and wealth effects. We use the British Household Panel Survey to test and confirm the model predictions, and deal with unobservable heterogeneity employing three research designs | individual fixed effects, housing-spell fixed effects, and instrumental variables. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10-20 percent

JEL-codes: N0 G32 F3 G3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-ure
Date: 2018-01-01
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Published in Journal of Urban Economics, 1, January, 2018, 103, pp. 52-66. ISSN: 0094-1190

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http://eprints.lse.ac.uk/84703/ Open access version. (application/pdf)

Related works:
Journal Article: Mortgage debt and entrepreneurship (2018) Downloads
Working Paper: Mortgage debt and entrepreneurship (2015) Downloads
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