Working Paper: CEPR ID: DP3903
Authors: Tullio Jappelli; Luigi Pistaferri
Abstract: 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.
Keywords: borrowing; mortgage debt; tax incentives
JEL Codes: D91; H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax reforms (H29) | Mortgage borrowing (G21) |
| Cancellation of tax incentives for high-income taxpayers (H26) | Propensity to borrow (G51) |
| Tax reforms (H29) | Propensity to borrow for low-income taxpayers (H31) |
| Tax reforms (H29) | Amount borrowed by low-income taxpayers (H74) |
| Tax reforms (H29) | Amount borrowed by high-income taxpayers (G51) |