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Stratification and Public Utility Services in Colombia: Subsidies to Households or Distortions on Housing Prices?

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  • Carlos Medina

    ()

  • Leonardo Morales

    ()

Abstract

Domiciliary public utility services in Colombia have a cross subsidy system which charges subsidized rates to the households who live in houses located in strata associated to low wealth levels, and taxed rates to the better off. We assesses the hypothesis that the flow of subsidies that potentially come from a particular house, are discounted by housing market agents so that most of them are transferred to the prices of the houses that generate the subsidies. By estimating a hedonic prices model applying a regression discontinuity approach, we find that the increment in house value estimated because of subsidies is similar in magnitude to the present value of the flow of subsidies. Likely effects are found on the rent amount. We conclude that subsidies to the poor population through public spending in domiciliary public utility services in Colombia is being achieved, if anything, in a very limited way. Most of the financial effort on this subject ends up distorting housing relative prices according to socioeconomic strata, with an annual cost of up to 0.7% of GDP in supposed gross subsidies to domiciliary public utility services.

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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 003528.

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Length: 38
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:col:000094:003528

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Related research

Keywords: targeting of subsidies; Incidence; stratification; segregation; hedonic price models; regression discontinuity design;

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References

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  1. Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper, Federal Reserve Bank of New York 9729, Federal Reserve Bank of New York.
  2. Cutler, David M & Glaeser, Edward L, 1997. "Are Ghettos Good or Bad?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 827-72, August.
  3. Kremer, Michael, 1997. "How Much Does Sorting Increase Inequality?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 115-39, February.
  4. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  5. P. C. Cheshire & E. S. Mills (ed.), 1999. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, Elsevier, edition 1, volume 3, number 3.
  6. Maddock, Rodney & Castano, Elkin & Vella, Frank, 1992. "Estimating Electricity Demand: The Cost of Linearising the Budget Constraint," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 350-54, May.
  7. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 77(6), pages 957-71, Nov./Dec..
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Cited by:
  1. Alejandro Gaviria & Carlos Medina & Leonardo Morales & Jairo Nuñez, 2008. "The Cost of Avoiding Crime: The Case of Bogotá," BORRADORES DE ECONOMIA 004600, BANCO DE LA REPÚBLICA.
  2. Carlos Medina & Leonardo Fabio Morales, 2007. "Demanda por Servicios Públicos Domiciliarios en Colombia y Subsidios: Implicaciones sobre el Bienestar," BORRADORES DE ECONOMIA 004293, BANCO DE LA REPÚBLICA.
  3. Carlos Medina & Leonardo Morales & Jairo Nuñez, . "Quality of Life in Urban Neighborhoods in Colombia: The Cases of Bogotá and Medellín," Borradores de Economia 536, Banco de la Republica de Colombia.
  4. Leonardo Morales, 2013. "Peers Effects on a Fertility Decision: an Application for Medellín Colombia," Borradores de Economia 777, Banco de la Republica de Colombia.
  5. Medina Carlos & Leonardo Morales, 2008. "Demanda por servicios públicos domiciliarios y pérdida irrecuperable de los subsidios: el caso colombiano," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  6. Shaun McRae, 2009. "Infrastructure Quality and the Subsidy Trap," Discussion Papers, Stanford Institute for Economic Policy Research 09-017, Stanford Institute for Economic Policy Research, revised Nov 2009.

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