Rational individuals know that present government debts transform into higher future taxes. The Ricardian equivalence implies that the burden of the debt is not shifted between generations because of compensating intergenerational transfers. While the assumptions for Ricardian equivalence to hold are quite demanding, we argue that there exists another equivalence mechanism which works also with non-altruistic individuals: Public debts capitalize into property values. Thus, communities with larger net debts exhibit, ceteris paribus, lower property prices. We provide empirical evidence for debt capitalization using unique data for the Swiss metropolitan area of Zurich.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number
2008-30.
Find related papers by JEL classification: H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing R51 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies H00 - Public Economics - - General - - - General
This paper has been announced in the following NEP Reports: