Did Housing Taxation Contribute to Increase Riskier Borrowing?

Did Housing Taxation Contribute to Increase Riskier Borrowing? This paper estimates, using a simultaneous equation model, the determinants of mortgage, including as a variable the tax saving due to the treatment of mortgage payments in Spanish income tax. We use an unusually rich data set obtained from a housing market intermediary with franchisers throughout the majority of the Spanish provinces. We observe that the income tax credit increased riskier borrowing during the housing boom years. Increasing by one percentage point the ratio of the present value of the stream of explicit tax savings to the price of the property, the mortgage amount granted increases by 1.6 %, whereas it causes a 2 % decrease in the term. This in turn, implies that the time discount factor increased in our sample by about 0.7–1.1 percentage points causing individuals to borrow riskier amounts of mortgage for shorter terms. This observation has important policy implications for governments wishing to foster real estate markets growth. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Did Housing Taxation Contribute to Increase Riskier Borrowing?

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Springer US
Copyright © 2015 by Springer Science+Business Media New York
Economics; Regional/Spatial Science; Financial Services
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