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

Tullio Jappelli () and Luigi Pistaferri ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: 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.

New Economics Papers: this item is included in nep-ure
Date: 2002-12-02
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Published in European Economic Review, February 2007, vol. 51, issue 2, pages 247-273

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