The impact of interest-rate subsidies on long-term household debt: Evidence from a large program

Nuno C. Martins and Ernesto Villanueva

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: The responsiveness of long-term household debt to the interest rate is a crucial parameter for assessing the effectiveness of public policies aimed at promoting specific types of saving. This paper estimates the effect of a reform of Credito Bonificado, a large program in Portugal that subsidized mortgage interest rates, on long-term household debt. The reform established a ceiling in the price of the house that could be financed through the program, and provides plausibly exogenous variation in incentives. Using a unique dataset of matched household survey data and administrative records of debt, we document a large decrease in the probability of signing a new loan after the removal of the subsidy.

Keywords: Consumer borrowing; subsidies; quasi-natural experiment (search for similar items in EconPapers)
JEL-codes: D91 E21 H20 (search for similar items in EconPapers)
Date: 2003-10
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (5)

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Working Paper: The Impact of Interest-rate Subsidies on Long-term Household Debt: Evidence from a Large Program (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:713

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