RESIDENTIAL MOBILITY AND HOUSING TAX REFORMS: Some Empirical Evidence*

The efficiency and equity implications of mortgage interest deductibility have been studied by a number of authors using models of housing demand that do not account for barriers to residential mobility. This paper examines how one's assessment of that proposed tax reform may differ based on models that do allow for such barriers, using data from Toronto, Canada. We find that earlier works tend to overstate the deadweight loss attributable to the introduction of mortgage interest deductibility, particularly in the short run.     

Default risk of wage-indexed payment mortgage in Turkey

This paper analyses default risk of wage-indexed payment mortgage (WIPM) in Turkey in comparison with other standard mortgage contracts originated in high inflationary economies. Emlak Bank launched WIPM linked to Civil Service employees’ wage (CSW) index during high inflationary period of late 1990s. Concurrently, the government introduced a policy linking CSW index to semi-annual expected rate of inflation in an attempt to facilitate housing finance for the fastest growing sector of the population. We find that WIPM protects borrowers against risk of high payment shocks whereas nominal contracts such as ARM and DIM would have resulted in high mortgage defaults.     

A spatial analysis of inward FDI and urban–rural wage inequality in China

This article investigates the spatial effect of inward foreign direct investment (FDI) on urban–rural wage inequality, both in the short and long run, by employing the Spatial Durbin Model. In particular, we carefully consider the heterogeneity of inward FDI with respect to its entry mode (ownership type) and sectoral distribution. Based on a panel dataset covering 30 provinces and cities in China from 2000 to 2016, our results show that inward FDI does not increase urban–rural wage inequality. In particular, we do not find a significant relationship between inward FDI in the secondary and tertiary sectors, while inward FDI in the primary sector has a slightly negative effect on inequality. When we consider inward FDI by entry mode, we find that wholly foreign-owned enterprises (WFE) have a negative spatial effect on urban–rural wage inequality in the short and long run, while equity joint ventures (EJV) reduce urban–rural inequality in the long run only.     

Credit market constraints and labor market decisions

In this paper, we examine whether imperfections in credit markets spill over to other markets, particularly the labor market. We take the case of Italy, a country that experienced changes in the mortgage market brought about by the 1992 European unification and other institutional shifts. These events make Italy a good laboratory to study the effects of financial markets on the labor market. Using household data from the Bank of Italy between 1989 and 1993, we estimate the relationship between female participation and mortgage use. We find a significant impact of mortgages on women's participation in the labor market.     

Foreign ownership,human capital,and the structure of wages in Japan

We examine the differences in the structure of wages between domestic and foreign-owned establishments in Japan. We use high-quality datasets from the Japanese government and construct a large employer–employee matched database consisting of 1 million workers in 1998. Our results confirm that foreign-owned establishments in Japan pay higher wages. We estimate that one percentage increase in foreign-ownership share of equity raises wages by 0.3%. We surmise that this foreign-ownership wage premium can be explained, at least in part, by compensating wage differentials. Workers in foreign-owned establishments are not protected by lifetime employment. They receive higher compensation for being exposed to higher risk and forfeiting their employment security. We also find that in foreign-owned establishments, wages are determined more by general skills, and less by firm-specific skills. These effects become more pronounced among establishments with a higher share of foreign ownership. The gender wage gap is considerably smaller among foreign establishments. Given the lack of long-term prospects for women in the Japanese labor market, foreign-owned establishments may be one source of ‘brain drain’ for highly skilled women there.     

Impairment and negative equity in the Irish mortgage market

Amongst the many housing markets across the OECD presently experiencing difficulties, the Irish case stands out. Between 2004 and 2007, a significant house price bubble emerged in Ireland, while the real economy was enjoying persistently strong growth rates. The sharp decline in house prices post 2007 coupled with the significant increase in unemployment has generated a combination of difficulties for the Irish residential market. To date, much of the analysis and discussion of the Irish market has tended to focus on either the concept of mortgage repayment distress or potential negative equity. By examining the issue of credit default in the Irish mortgage market, we focus on the interaction between delinquency (repayment distress) and solvency (negative equity). Building on earlier work, which used the Survey on Income and Living Conditions (SILC), we marry existing estimates of repayment distress with estimates of negative equity for a representative sample of Irish households. Using copula modelling we then examine the dependence structure across the distributions of mortgage delinquency and solvency for these households. As a result, we are in a position to estimate the probability that a household experiencing repayment distress might also be in negative equity.     

Evidence on the Demand for Mortgage Debt by Owner-Occupants

This paper explores the relationship between household mortgage debt burdens and housing consumption, periodic income, nonhousing wealth, the income tax position of the household, expected mobility, and other micro-level characteristics that proxy for household risk preferences and life cycle effects. We use 1985 and 1989 American Housing Survey data to estimate mortgage debt level equations simultaneous with house value equations, controlling for the contemporaneous nature of these two choices. We find that larger debt levels are positively associated with greater value residences and with the level of household income. Numerous household level demographic characteristics are also systematically related to mortgage demand. Of particular interest are our findings that the use of mortgage debt is affected significantly by the rate of tax savings on mortgage interest deductions and by the expected mobility of the household.     

Time varying risk premia for real estate investment trusts: A GARCH-M model

This study employs the generalized autoregressive conditionally heteroskedastic in the mean (GARCH-M) methodology to investigate the return generating process of real estate investment trusts (REIT). The trade-off between excess returns and the conditional variance was positive for both equity and mortgage REITs but it was significant only for the latter. Changes in interest rates and their conditional variance were found to be inversely related to REIT excess returns. The 1986 tax law had a negative impact on the excess returns to both REIT sectors but the coefficient was significant only for mortgage REITs. The GARCH-M specification was determined to be more appropriate for the mortgage REIT portfolio than for the portfolio of equity REITs.     

Why Do Mortgage Markets Matter?

1999 saw the return of large scale mortgage equity - ie mortgage borrowing to finance consumption rather than house purchase - for the first time for a decade. Recent developments of the OEF macroeconometric model of the UK economy have focused on the determination of mortgage lending, looking in particular at the impact of downpayment constraints - ie the deposit borrowers have to put down when they buy a house. In this article, Geoffrey Meen uses this model to analyse the effects of mortgages on: (i) the cycle in the UK housing market at a national level; (ii) regional house price differentials; and (iii) aggregate savings and consumer behaviour.     

The prevalence and impact of misstated incomes on mortgage loan applications

Misstatement of income on mortgage loan applications (the “liar-loan” problem) is thought to have been a contributor to the boom and bust of mortgage markets. We provide nationwide measurements that reflect the degree to which incomes on mid-2000 home-purchase mortgage loan applications were overstated relative to the actual incomes of mortgage applicants. Our results suggest a substantial degree of income overstatement in 2005 and 2006, one consistent with the average mortgage application overstating income 15–20%. We find the tendency to misstate income was associated with markets with large home-price increases during the boom. There is little support for the proposition that income overstatement played a substantial role in subsequent mortgage defaults.     

Analyzing yield, duration and convexity of mortgage loans under prepayment and default risks

In this article, we construct a general model, which considers the borrower’s financial and non-financial termination behavior, to derive the closed-form formula of the mortgage value for analyzing the yield, duration and convexity of the risky mortgage. Since the risks of prepayment and default are reasonably expounded in our model, our formulae are more appropriate than traditional mortgage formulae. We also analyze the effects of the prepayment penalty and partial prepayment on the yield, duration and convexity of a mortgage, and provide lenders with an upper-bound for the mortgage default insurance rate. Our model provides portfolio managers a useful framework to more appropriately appraise the mortgage and more effectively hedge their mortgage holdings. From the results of sensitivity analyses, we find that higher interest-rate, prepayment and default risks will increase the mortgage yield and reduce the duration and convexity of the mortgage.     

Debts on debts

This paper studies the impact of mortgages on consumer debt and on debt on durable goods. Outstanding debt, representing mortgages, affects positively consumer debt, and the debt on durable goods. This hypothesis is empirically tested for the U.S. using PSID 2005 wave. Our results are striking. First, we find strong evidence supporting a positive association between mortgage loans and consumer debts, regardless of the measures used, the control variables used, and the methods used. The results remain unchanged when we address potential endogeneity and measurement error problems. Second, we find that the effects of mortgages on the debt on durable goods are in general smaller than the effects of mortgages on other types of debts. Third, our distributional analysis reveals an interesting pattern of the effects on consumer debt of mortgage over the distribution. Specifically, the effects monotonically decrease as the quantile increase, with the smallest effects being at the upper tail of the distribution. Finally, we also examine the short-run dynamics of the relation between mortgage and consumer debts. We find that there is no systematic relation between the growth rate of mortgage and the growth rates of consumer debts.     

Borrowing Constraints and Credit Demand in a Developing Economy

This paper investigates the determinants of credit demand in the presence of borrowing constraints in a developing economy. We model the determinants of observed debt for Chilean households while accounting for selection bias and the endogeneity of their income and specific household assets. Using a novel Chilean dataset, we estimate the relationship between household characteristics and consumer and mortgage debt. We find substantial differences in the nature of these relationships across the types of debt. For example, we find that the income elasticity for consumer debt is greater than 1 whereas for mortgage debt it is not. The results suggest the increased availability of credit, combined with the aging of the Chilean population, is likely to drastically change the distribution and level of Chilean debt. These findings are particularly relevant for other developing economies currently experiencing rapid income and debt growth. Copyright © 2015 John Wiley & Sons, Ltd.     

生产率与创新工资门槛假说:基于中国经验数据分析

在现有理论基础上,结合荷兰等国家的经验事实,本文提出了创新工资门槛假说:工资上涨促进生产率的提高,但存在门槛效应。基于Hansen提出的门槛回归模型,使用中国国有企业和三资企业省级面板数据证实了该假说的存在。结果表明,国有企业中,工资水平低于23012.16元的省份有6个,他们可能陷入低工资—低创新陷阱;工资水平处于创新最佳状态的省份有22个。三资企业中,7个省份的工资水平处于创新的最佳状态。在控制变量中,国内市场需求与生产率正相关。     

The Roles of Employer and Employee Characteristics for Plant Productivity

The relationships of worker characteristics and productivity are examined using a matched worker-plant data set from Finnish manufacturing. The panel data are used for estimating productivity and wage profiles according to average age, seniority, and education. We measure productivity using the multilateral total factor productivity index. We find that the wage returns to plant-specific seniority exceed productivity returns when seniority is high. This result supports the hypothesis that human capital is not firm specific, and seniority related wages are used for incentive reasons, but may also be a symptom of sorting or insider influences on wage formation. Plant average age improves productivity more than it increases wage when average age is low, but for higher ages the productivity and wage returns to age are fairly similar. The returns to education in terms of wage and productivity are fairly close to each other for higher levels of education, but mid-level education is underpaid.     

Instrument Choice: The Demand for Mortgages in Canada

This paper is directed at understanding the factors which caused mortgage demand to fluctuate to the degree witnessed in the 1980s. We model the mortgage choice decision as involving simultaneous options on both the term and the amortization choice, by cost minimizing risk averse borrowers. The model is estimated using a bivariate ordered probit methodology. An extensive database containing details on the financial and demographic characteristics of households is used. We find that, contrary to the dominant model of mortgage demand, borrowers react to market conditions in a risk averse and cost minimizing manner.     

How do European firms adjust their labour costs when nominal wages are rigid?

Although workers' nominal wages are seldom cut, firms have multiple options available if they require adjustments in their wage bills. We broaden the analysis of relative (in)flexibility in labour costs by investigating the use of other margins of labour cost adjustment at the firm level beyond base wages. Using data from a unique survey, we find that European firms make extensive use of other components of compensation to adjust the cost of labour. Interestingly, firms facing base wage rigidity are more likely to use alternative margins of labour cost adjustment; therefore there appears to be some degree of substitutability between wage flexibility and the flexibility of other cost components. Changes in bonuses and non-pay benefits are some of the potential margins firms use to reduce costs. We also show how the margins of adjustment chosen are affected by unionisation and firm and worker characteristics.     

Labour market institutions and employment in France

The purpose of this paper is to use individual data to study how the minimum wage and the welfare system combine to affect employment in France. Using the 1997 Labour Force Survey, we decompose non‐employment of married women into three components: voluntary, classical (due to the minimum wage) and ‘other’ (a residual category). We find that the minimum wage explains close to 15% of non‐employment for these women and that the disincentive effects of some welfare policy measures may be large. Our approach also allows us to evaluate various labour and welfare policy experiments in their effects on participation and employment. Copyright © 2002 John Wiley & Sons, Ltd.     

A micro view on home equity withdrawal and its determinants: Evidence from Dutch households

For most households, home ownership is the largest wealth component that has become more accessible through innovation and deregulation in mortgage markets. This paper studies the factors driving home equity withdrawal (HEW) at the household level using Dutch survey data. In the Netherlands, house prices were growing fast and mortgage expenses are to a large extent tax deductible. Expectations and perceptions do seem to play an important role in HEW. Withdrawers tend to be more positive about house price developments and – although having lower income – less concerned about their future economic situation. HEW can have a significant impact on both households and the economy, with most of the equity released being reinvested in the housing sector and only a small share used to finance consumption expenditure.