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Capitalization of Central Government Grants into Local House Prices: Panel Data Evidence from England

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  • Christian A. L. Hilber
  • Teemu Lyytikäinen
  • Wouter Vermeulen

Abstract

We explore the impact of central government grants on local house prices in England using a panel data set of local authorities (LAs) from 2001 to 2008. Electoral targeting of grants to LAs by the incumbent national government provides an exogenous source of variation in grants that we exploit to identify their causal effect on house prices. Our results indicate substantial or even full capitalization. We also find that house prices respond more strongly in locations in which new construction is constrained by physical barriers. Our results imply that (i) during our sample period grants were largely used in a way that is valued by the marginal homebuyer and (ii) increases in grants to a LA may mainly benefit the typically better off property owners (homeowners and absentee landlords) in that LA

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0057.

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Date of creation: Sep 2010
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Handle: RePEc:cep:sercdp:0057

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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Keywords: local public finance; house prices; supply constraints; central government grants;

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Cited by:
  1. Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Christian A. L. Hilber & Teemu Lyytikäinen, 2012. "The Effect of the UK Stamp Duty Land Tax on Household Mobility," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0115, Spatial Economics Research Centre, LSE.
  3. Hanson, Andrew & Rohlin, Shawn, 2013. "Do spatially targeted redevelopment programs spillover?," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 86-100.

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