Reform of the Mortgage Interest Tax Relief System, Policy Uncertainty and Precautionary Savings in the Netherlands

32 Pages Posted: 25 May 2013

See all articles by Mauro Mastrogiacomo

Mauro Mastrogiacomo

De Nederlansdche Bank (DNB); Vrije Universiteit Amsterdam, School of Business and Economics

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Date Written: May 23, 2013

Abstract

We examined the mortgage interest tax relief (MIR) system in the Netherlands and reforms to this system, based on answers to direct questions in survey data for the period 2010-2012. As well as tracking individuals over time and at strategic moments in the process of the policy reform, this unique data set allowed us to isolate the effect of policy uncertainty on precautionary savings and, therefore, on consumption. We found that policy uncertainty alone could increase household buffers in the form of net worth. We estimate that this uncertainty ex ante induces households to increase their net worth by around 6% (EUR 8,000 on average). Although a MIR reform could mitigate this effect on accumulated savings, we also show that reforms that are not credible ex post could exacerbate rather than mitigate the effect on precautionary savings.

Keywords: precautionary savings, income uncertainty, mortgage interest policy reform

JEL Classification: D12, D91, E21

Suggested Citation

Mastrogiacomo, Mauro, Reform of the Mortgage Interest Tax Relief System, Policy Uncertainty and Precautionary Savings in the Netherlands (May 23, 2013). De Nederlandsche Bank Working Paper No. 380, Available at SSRN: https://ssrn.com/abstract=2269539 or http://dx.doi.org/10.2139/ssrn.2269539

Mauro Mastrogiacomo (Contact Author)

De Nederlansdche Bank (DNB) ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31(0)20 444 6037 (Phone)
+31(0)20 444 6004 (Fax)

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