Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
Chapter 12, Problem 6PA
To determine

The effect of the tax reform of 1986 on the amount of borrowing through consumer debt and home equity debt.

Expert Solution & Answer
Check Mark

Explanation of Solution

The tax reform act of 1986 was implemented in order to reduce the consumer debt and to increase home equity debt. As a result, people started to pay their mortgage less quickly and financed the general spending through home equity.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy; they include income tax, property tax, professional tax, and so forth.

Tax reform of 1986: This reform eliminated the deductibility of interest payments on consumer debt but maintained the deductibility of interest payments on mortgages and home equity loans.

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