The Capitalization of Interest Subsidies: Evidence from Sweden

Dice Center Working Paper No. 98-15

28 Pages Posted: 1 Dec 1998

See all articles by Tommy Berger

Tommy Berger

Uppsala University - Institute for Housing and Urban Research

Peter Englund

Swedish House of Finance

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Bengt Turner

Uppsala University - Institute for Housing and Urban Research

Date Written: September 8, 1998

Abstract

We analyze by far the most extensive data base yet employed in estimating capitalization of below-market interest rates into asset prices: nearly 300,000 sales of owner-occupied homes in Sweden from 1981 to 1993 with 40,000 including government subsidized interest rates. Our estimates indicate very clearly that interest subsidies are capitalized into house prices. The below-market financing parameter is consistently significantly negative in all model specifications, irrespective of assumptions about the degree of foresight, representation of the age structure and interest rate measure for all ten regions that we have studied. In our favored model specification the estimated capitalization coefficients center on minus unity, indicating full capitalization.

JEL Classification: G12, R31

Suggested Citation

Berger, Tommy and Englund, Peter and Hendershott, Patric H. and Turner, Bengt, The Capitalization of Interest Subsidies: Evidence from Sweden (September 8, 1998). Dice Center Working Paper No. 98-15. Available at SSRN: https://ssrn.com/abstract=140285 or http://dx.doi.org/10.2139/ssrn.140285

Tommy Berger

Uppsala University - Institute for Housing and Urban Research ( email )

Box 785
S-801 29 Gavle
Sweden
+46 26 4206529 (Phone)

Peter Englund

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bengt Turner

Uppsala University - Institute for Housing and Urban Research ( email )

S-801 29 Gavle
Sweden
462 614 7823 (Phone)
462 614 7802 (Fax)

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