Discussion paper

DP3903 Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms

Before 1992 mortgage interest in Italy was fully tax deductible up to 3,500 euro (7,000 for two cosigners). Between 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.

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Citation

Jappelli, T and L Pistaferri (eds) (2004), “DP3903 Incentives to Borrow and the Demand for Mortgage Debt: An Analysis of Tax Reforms”, CEPR Press Discussion Paper No. 3903. https://cepr.org/publications/dp3903