Do people respond to tax incentives? An analysis of the Italian reform of the deductibility of home mortgage interests [An article from: European Economic Review]
This digital document is a journal article from European Economic Review, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
Before 1992 mortgage interests in Italy were fully tax deductible up to 3500 Euro (7000 for two cosigners). In 1992-1994 the government implemented a series of tax reforms whose ultimate effect was to eliminate the relation between the after-tax mortgage rate and the marginal tax rate. Using data from the 1989-2002 Survey of Household Income and Wealth we test if the elimination of incentives has affected the sensitivity of the decision to borrow and the amount borrowed with respect to the marginal tax rate. Regression analysis and difference-in-differences estimates indicate that tax considerations have not affected the demand for mortgage debt, neither at the extensive nor intensive margin. These results are consistent with lack of financial information and credit rationing during the sample period.
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