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A WORKING WHITE PAPER
Orazio Attanasio
Agnes Kovacs
Patrick Moran
We propose a rich model of household behavior to study the effect of two important policies: mortgage interest tax deduction and mandatory mortgage amortization. These policies have attracted some controversy, first because they are conceived to increase overall saving, an objective that the literature does not agree they can achieve, and second because they incentivize illiquid savings and may thus increase the share of ‘wealthy hand-to-mouth’ households.
We build a life-cycle model where housing may act as a commitment device to counteract present biases arising from temptation. We show that the model matches several empirical facts, including the large share of wealthy hand-to-mouth households. We evaluate the effect of the two policies and find that they increase wealth accumulation by 7 and 10% respectively.
Our results demonstrate that these policies not only induce portfolio re-balancing, as emphasized by the previous literature, but also increase savings by making commitment more accessible.
WHITE PAPER: https://www.nber.org/system/files/working_papers/w28938/w28938.pdf
ASSESSMENT: Your thoughts and comments are appreciated.
THANK YOU
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Filed under: Experts Invited, Investing | Tagged: Agnes Kovacs, NBER, Orazio Attanasio, Patrick Moran, wealth accumulation, wealth incentives |
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