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Refinancing cross-subsidies in the mortgage market

Fisher, Jack, Gavazza, Alessandro ORCID: 0000-0001-9236-5813, Liu, Lu, Ramadorai, Tarun and Tripathy, Jagdish (2024) Refinancing cross-subsidies in the mortgage market. Journal of Financial Economics, 158. ISSN 0304-405X

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Identification Number: 10.1016/j.jfineco.2024.103876


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.

Item Type: Article
Official URL:
Additional Information: © 2024 The Authors
Divisions: Economics
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G0 - General > G00 - General
N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
Date Deposited: 28 May 2024 15:24
Last Modified: 16 Jul 2024 22:30

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