Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300300 
Year of Publication: 
2024
Series/Report no.: 
Working Paper Series No. W24:02
Publisher: 
University of Iceland, Institute of Economic Studies (IoES), Reykjavik
Abstract: 
We take advantage of a unique experiment that took place in Iceland in 2015. Following the collapse of the country's banking system in 2008, the authorities decided on a program of mortgage relief that in effect lowered the principal of mortgages overnight. What sets our experiment apart from others is that the debt relief was financed by foreign creditors, that we have administrative data on all taxpayers in the country and that the mortgage relief was implemented many years after the end of the economic crisis when household balance sheets had been repaired. We measure the effect of the mortgage relief on the saving of every taxpayer in the country using households that were not eligible for debt relief as a control group. While a negative wealth effect on saving could have been expected, households amortized even more in response to the debt forgiveness. The increased amortization is not only due to lower interest costs but also due to higher saving, mostly by highly leveraged and liquidity constrained households.
Subjects: 
Mortgage relief
wealth
saving
JEL: 
E21
Document Type: 
Working Paper

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