Iceland’s Natural Experiment in Mortgage Relief

We use data from tax returns in Iceland on assets, liabilities and income to calculate the net worth of each taxpayer in our sample. Annual saving is measured by the change in net worth between any two years once changes in house prices and indexed debt are corrected for. The data are used to map the pattern of saving in Iceland by age, gender, income and family status; to study the effect of the financial boom and bust in the first decade of the century on the distribution of net worth; to describe the effect of the crisis on the subsequent saving behavior of individuals; and to test theories of consumption behavior, in particular the Permanent Income Hypothesis, using the natural experiment of a mortgage relief program that benefited a treatment group receiving the relief more than a control group of tenants and home owners who did not have any debt.