Abstract
We study the dynamic consumption-portfolio problem over the life cycle, with respect to tax-deferred investing for investors who acquire housing services by either renting or owning a home. The joint existence of these two investment vehicles creates potential for tax arbitrage. Specifically, investors can deduct mortgage interest payments from taxable income, while simultaneously earning interest in tax-deferred accounts tax-free. Matching empirical evidence, our model predicts that investors with higher retirement savings choose higher loan-to-value ratios to exploit this tax arbitrage opportunity. However, many households could benefit from more effectively taking advantage of tax arbitrage.
Originalsprog | Engelsk |
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Tidsskrift | Journal of Economic Dynamics and Control |
Vol/bind | 37 |
Udgave nummer | 6 |
Sider (fra-til) | 1110-1125 |
Antal sider | 16 |
ISSN | 0165-1889 |
DOI | |
Status | Udgivet - jun. 2013 |