The tradeoff between mortgage prepayments and tax-deferred retirement savings

• 成果类型: Article; Proceedings Paper
• 署名作者: Amromin, Gene; Huang, Jennifer; Sialm, Clemens
• 署名单位: University of Texas System; University of Texas Austin; National Bureau of Economic Research; Federal Reserve System - USA; Federal Reserve Bank - Chicago
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/j.jpubeco.2007.03.011
• 发表日期: 2007
• 页码: 2014-2040
• 关键词: tax arbitrages; debt aversion; savings choice

摘要

Many households face the tradeoff between paying an extra dollar off the remaining mortgage on their house and saving that extra dollar in tax-deferred accounts (TDAs) used for retirement. We show that, under certain conditions, it becomes a tax arbitrage to reduce mortgage prepayments and to increase TDA contributions because of the tax deductibility of mortgage interest and tax-exemption of qualified retirement savings. Using data from the Survey of Consumer Finances, we document that a significant number of households that are accelerating their mortgage payments instead of saving in TDAs forgo a profitable tax arbitrage opportunity. Finally, we show empirically that this inefficient behavior is unlikely to be driven by liquidity or other financial constraints. Rather, the observed behavior can be attributed to a certain extent to the reluctance of many households to participate in financial markets as either lenders or borrowers. (c) 2007 Elsevier B.V. All rights reserved.