Working Paper: CEPR ID: DP15519
Authors: Jos Luis Peydr; Gabriel Jimnez; David Martinezmiera
Abstract: We show strong overall and heterogeneous economic incidence effects, as well as distortionary effects, of only shifting statutory incidence (i.e., the agent on which taxes are levied), without any tax rate change. For identification, we exploit a tax change and administrative data from the credit market: (i) a policy change in 2018 in Spain shifting an existing mortgage tax from being levied on borrowers to being levied on banks; (ii) some areas, for historical reasons, were exempt from paying this tax (or have different tax rates); and (iii) an exhaustive matched credit register. We find the following robust results: First, after the policy change, the average mortgage rate increases consistently with a strong – but not complete – tax pass-through. Second, there is a large heterogeneity in such pass-through: larger for borrowers with lower income, a smaller number of lending relationships, not working for the lender, or facing less banks in their zip-code, thereby suggesting a bargaining power mechanism at work. Third, despite no variation in the tax rate, and consistent with the non-full tax pass-through, the tax shift increases banks’ risk-taking. More affected banks reduce costly mortgage insurance in case of loan default (especially so if banks have weaker ex-ante balance sheets) and expand into non-affected but (much) ex-ante riskier consumer lending, experiencing even higher ex-post defaults within consumer loans.
Keywords: taxes; incidence; banks; inequality; risktaking; mortgages
JEL Codes: E51; G21; G28; G51; H22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy change (D78) | average mortgage rate increase (G21) |
| policy change (D78) | banks' risk-taking behavior increase (G21) |
| average mortgage rate increase (G21) | higher default rates in consumer loans (G21) |
| lower-income borrowers (G51) | larger increase in mortgage rates (G21) |
| fewer banking relationships (F65) | larger increase in mortgage rates (G21) |