The Capitalization of Interest Subsidies: Evidence from Sweden

We analyze by far the most extensive database 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 27,000 including government-subsidized interest rates. Our estimates indicate very c...

Full description

Saved in:
Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2000-05, Vol.32 (2), p.199-217
Main Authors: Berger, Tommy, Englund, Peter, Hendershott, Patric H., Turner, Bengt
Format: Article
Language:English
Subjects:
Analysis
Capital
Capitalization
Company financing
Company pricing policy
Construction costs
Cost control
Default
Down payments
Dwellings
Efficiency
Expected values
Finance
Households
Houses
Housing
Housing market
Housing prices
Housing subsidies
Housing, Single family
Interest
Interest rates
Loan rates
Loans
Mortgage loans
Mortgages
Nominal interest rates
Present value
Prices and rates
Production costs
Real estate sales
Single family housing
Studies
Subsidies
Sweden
Tax rates
Tax subsidies
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We analyze by far the most extensive database 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 27,000 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 significant 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 unity, indicating full capitalization of after-tax interest rate subsidies.
ISSN:0022-2879
1538-4616
DOI:10.2307/2601239