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The Capitalization of Interest Subsidies: Evidence from Sweden

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  • Berger, Tommy, et al

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 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.

Suggested Citation

  • Berger, Tommy, et al, 2000. "The Capitalization of Interest Subsidies: Evidence from Sweden," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(2), pages 199-217, May.
    • Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:2:p:199-217
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    Cited by:

    1. Aki Kangasharju, 2010. "Housing Allowance and the Rent of Low‐income Households," Scandinavian Journal of Economics, Wiley Blackwell, vol. 112(3), pages 595-617, September.
    2. Carla Krolage, 2020. "The Effect of Real Estate Purchase Subsidies on Property Prices," ifo Working Paper Series 333, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Tirtiroglu, Dogan & Tirtiroglu, Ercan, 2020. "Seller Financing: Contracting Out of the Lemons and Moral Hazard Problems When They May Co-Exist," American Business Review, Pompea College of Business, University of New Haven, vol. 23(2), pages 335-357, November.
    4. Elinder, Mikael & Persson, Lovisa, 2017. "House price responses to a national property tax reform," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 18-39.
    5. Carla Krolage, 2023. "The effect of real estate purchase subsidies on property prices," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 215-246, February.
    6. Wouter Vangeel & Laurens Defau & Lieven De Moor, 2024. "Influence of a Mortgage Interest Deduction on Homeownership Attainment of European Households," International Real Estate Review, Global Social Science Institute, vol. 27(1), pages 33-79.
    7. Özge Öner, 2017. "Retail city: the relationship between place attractiveness and accessibility to shops," Spatial Economic Analysis, Taylor & Francis Journals, vol. 12(1), pages 72-91, January.
    8. Elinder, Mikael & Persson, Lovisa, 2014. "Property taxation, bounded rationality and housing prices," Working Paper Series 2014:4, Uppsala University, Department of Economics.
    9. Elinder, Mikael & Persson, Lovisa, 2014. "Property Taxation, Bounded Rationality and House Prices," Working Paper Series 1029, Research Institute of Industrial Economics.
    10. Shelburne Robert C. & Clark Don P. & Longfellow Blodgett Linda & Basu Parikshit K. & Hunter Richard J. & Ryan Leo V. & Shah Abhay & Zeis Charles & Regassa Hanilu & Ahmadian Ahmad & Chang Charles C. & , 2002. "Global Economy Quarterly, Issue 2-4," Global Economy Journal, De Gruyter, vol. 3(2-4), pages 153-153, December.

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