Consumption and Savings of First Time House Owners: How Do They Deal with Adverse Income Shocks?

We characterize savings behavior around the point of the first house purchase. Using a panel data set with income and wealth information on Danish first-time house owners we document that households save for the down payment, mortgage to the limit, run down liquid assets at purchase, and adjust to adverse income shocks occurring just after the purchase by reducing consumption. We build a model that replicates these observations, show that the preference parameters are identified from the data, and estimate them. Based on the estimated model house buying significantly reduces the ability to smooth adverse income shocks.

Tax Incentives and Household Portfolios: A Panel Data Analysis

This paper investigates the responsiveness of household portfolios to tax incentives by exploiting a substantial tax reform that altered after-tax returns and cost of debt for a large number of households. An extraordinary panel data set that covers two years before and after the reform is used for the analysis. Our empirical findings suggest that households reshuffle their balance sheets in the case of a partial deductibility phase-out. In particular, heavily taxed,interest-bearing assets are used to pay off mortgage debt. Furthermore, we find that taxes have a significant impact on the structure of household portfolios even after controlling for unobserved heterogeneity.household portfolios; taxation; panel data; natural experiment

Motives for Transfers from Parents to Children: Tests with First-Time Homeowners’ Data

There are good theoretical reasons why transfers from parents are likely to be important around the time of the first home purchase. Transactions costs associated with trading houses make people with increasing income paths prefer to buy a house that is more expensive than what matches their current income. This together with a down-payment constraint make some first-time house owners borrow to the limit and run down liquid assets at purchase thereby making them vulnerable to adverse income shocks. Intergenerational transfers can alleviate these constraints. Moreover, previous papers have suggested that transfers from parents to children are significant exactly around the time where children buy their first home. Using a panel data set issued from Danish administrative registers with information about wealth of a sample of first-time homeowners and their parents, we document that child and parent resources, house value as well as financial resources are correlated. We then go on to test if there are direct parental transfers targeted to the purchase of the house, and in case of an unemployment spell during the years after the purchase where children typically hold little liquid assets. We also test whether children consider parental wealth as part of their own precautionary savings. We do not find strong evidence of any of these hypotheses.intergenerational transfers; home purchase; saving; empirical analysis

Imputing Consumption from Income Tax Registers

In this study we investigate if it is possible to derive a measure of total expenditure from administrative income-tax-register data at the individual household level. We exploit that the households in the Danish Expenditure Survey 1995 can be linked to their administrative registers for the years around the survey year. These matched data offer a unique possibility to both construct measures of total expenditure and to check directly on the reliability of our imputations. The results are promising. It gives clear indication that administrative register data on income, tax payments, and wealth can be used to construct a measure of total expenditure at the household level.

Long-term Labour Market Performance of Whiplash Claimants

A whiplash is a sudden acceleration-deceleration of the neck and head, typically associated with a rear-end car collision that may produce injuries in the soft tissue. Often there are no objective signs or symptoms of injury, and diagnosing lasting whiplash associated disorders (WAD) is difficult, in particular for individuals with mild or moderate injuries. This leaves a scope for compensation-seeking behaviour. The medical literature disagrees on the importance of this explanation. In this paper we trace the long-term earnings of a group of Danish individuals with mild to moderate injuries claiming compensation for having permanently lost earnings capacity and investigate if they return to their full pre-whiplash earnings when the insurance claim has been assessed. We find that about half of the claimants, those not granted compensation, return to an earnings level comparable with their pre-whiplash earnings suggesting that these individuals do not have chronic WAD in the sense that their earnings capacity is reduced. The other half, those granted compensation, experience persistent reductions in earnings relative to the case where they had not been exposed to a whiplash, even when they have a strong financial incentive to not reduce earnings. This suggests that moderate injuries tend to be chronic, and that compensation-seeking behaviour is not the main explanation for this group. We find that claimants with chronic WADs used more health care in the year prior to the whiplash than claimants with non-chronic cases. This suggests that lower initial health capital increases the risk that a whiplash causes persistent WAD.dissolution; whiplash; register data; labour market

Tax Incentives and Household Portfolios: A Panel Data Analysis

This paper investigates the responsiveness of household portfolios to tax incentives by exploiting a substantial tax reform that altered after-tax returns and cost of debt for a large number of households. An extraordinary panel data set that covers two years before and after the reform is used for the analysis. Our empirical findings suggest that households reshuffle their balance sheets in the case of a partial deductibility phase-out. In particular, heavily taxed, interest-bearing assets are used to pay off mortgage debt. Furthermore, we find that taxes have a significant impact on the structure of household portfolios even after controlling for unobserved heterogeneity.Household portfolios, taxation, panel data, natural experiment