Did Housing Taxation Contribute to Increase Riskier Borrowing?

Posted: 14 May 2016

See all articles by Josep Raya

Josep Raya

Universitat Pompeu Fabra

Aleksander Kucel

ESCSET, Universitat Pompeu Fabra

Date Written: May 13, 2016


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.

Keywords: Taxation; Housing; Mortgages; Riskier borrowing; Discount factor

Suggested Citation

Raya, Josep and Kucel, Aleksander, Did Housing Taxation Contribute to Increase Riskier Borrowing? (May 13, 2016). Journal of Real Estate Finance and Economics, Vol. 53, No. 1, 2016, Available at SSRN: https://ssrn.com/abstract=2779690

Josep Raya (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005

Aleksander Kucel

ESCSET, Universitat Pompeu Fabra ( email )

Avinguda Ernest Lluch 32 (Porta Laietana)
MatarĂ³, Barcelona 08302
931 69 65 01 (Phone)
08302 (Fax)

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