Journal of Financial Economics Vol. 158 2024

Refinancing cross-subsidies in the mortgage market

Jack Fisher¹; Alessandro Gavazza^2,3; Lu Liu⁴; Tarun Ramadorai^2,5; Jagdish Tripathy⁶

¹ Harvard Business School, United States · ² Centre for Economic Policy Research · ³ London School of Economics and Political Science · ⁴ University of Pennsylvania · ⁵ Imperial College London · ⁶ Bank of England

Abstract

In household finance markets, inactive households can implicitly cross-subsidize active households who promptly respond to financial incentives. We assess the magnitude and distribution of cross-subsidies in the mortgage market. To do so, we build a structural model of household mortgage refinancing and estimate it on rich administrative data covering the stock of outstanding mortgages in the UK. We estimate sizeable cross-subsidies that flow from relatively poorer households and those located in less-wealthy areas towards richer households and those located in wealthier areas. Our work highlights how the design of household finance markets can contribute to wealth inequality.

DOI

10.1016/j.jfineco.2024.103876

Volume

158

Pages

103876

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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