Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098691 | Journal of Economic Dynamics and Control | 2013 | 16 Pages |
Abstract
We study the dynamic consumption-portfolio problem over the life cycle, with respect to tax-deferred investing for investors who acquire housing services by either renting or owning a home. The joint existence of these two investment vehicles creates potential for tax arbitrage. Specifically, investors can deduct mortgage interest payments from taxable income, while simultaneously earning interest in tax-deferred accounts tax-free. Matching empirical evidence, our model predicts that investors with higher retirement savings choose higher loan-to-value ratios to exploit this tax arbitrage opportunity. However, many households could benefit from more effectively taking advantage of tax arbitrage.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Marcel Marekwica, Alexander Schaefer, Steffen Sebastian,