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How Do Households Value the Future? Evidence from Property Taxes

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  • Hans R.A. Koster
  • Edward W. Pinchbeck

Abstract

Despite the near ubiquity of intertemporal choice, there is little consensus on the rate at which individuals trade present and future costs and benefits. We contribute to this debate by estimating discount rates from extensive data on housing transactions and spatiotemporal variation in property taxes in England. Our findings imply long-term average net of growth nominal discount rates that are between 3 and 4 percent. The close correspondence to prevailing market interest rates gives little reason to suggest that households misoptimize by materially undervaluing very long-term financial flows in this high-stakes context.

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  • Hans R.A. Koster & Edward W. Pinchbeck, 2022. "How Do Households Value the Future? Evidence from Property Taxes," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 207-239, February.
    • Handle: RePEc:aea:aejpol:v:14:y:2022:i:1:p:207-39
    DOI: 10.1257/pol.20200443
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    3. Gaigné, Carl & Koster, Hans R.A. & Moizeau, Fabien & Thisse, Jacques-François, 2022. "Who lives where in the city? Amenities, commuting and income sorting," Journal of Urban Economics, Elsevier, vol. 128(C).
    4. Gibbons, Stephen & Heblich, Stephan & Timmins, Christopher, 2021. "Market tremors: Shale gas exploration, earthquakes, and their impact on house prices," Journal of Urban Economics, Elsevier, vol. 122(C).
    5. Gabriel M. Ahlfeldt & Fabian Bald & Duncan Roth & Tobias Seidel, 2020. "Quality of life in a dynamic spatial model," CEP Discussion Papers dp1736, Centre for Economic Performance, LSE.
    6. Gaigne, Carl & Koster, Hans R.A. & Moizeau, Fabien & Thisse, Jacques-François, 2020. "Income Sorting Across Space: The Role of Amenities and Commuting Costs," Working Papers 302579, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    7. Giertz, Seth H. & Ramezani, Rasoul & Beron, Kurt J., 2021. "Property tax capitalization, a case study of Dallas County," Regional Science and Urban Economics, Elsevier, vol. 89(C).

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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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