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Land Taxes and Revenue Needs as Communities Grow and Decline: Evidence from New Zealand

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Author Info
Suzi Kerr () (Motu Economic and Public Policy Research)
Andrew Aitken () (Motu Economic and Public Policy Research)
Arthur Grimes () (Motu Economic and Public Policy Research)

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Abstract

An efficient housing market is of critical importance for individual welfare and for a well-functioning economy. We test the efficiency of this market by estimating the factors that determine both the long-run and the dynamic paths of regional house prices. Our tests use a new quarterly regional panel data set covering the 14 regions of New Zealand from 1981 to 2002. The tests indicate that regional housing markets converge to an equilibrium consistent with consumer optimising conditions, and hence with long-run efficiency. However, some conditions required for short-run (dynamic) efficiency are violated. We find that extrapolative price expectations, based on past regional phenomena, lead to overshooting of house prices in response to new region-specific information. We also find that price dynamics are influenced by past regional house sales activity and that the dynamic adjustment process is asymmetric depending on whether house prices are above or below their long-run equilibrium.

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Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 04_02.

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Length: 46 pages
Date of creation: May 2004
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Handle: RePEc:mtu:wpaper:04_02

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Related research
Keywords: House prices housing appreciation housing market adjustment dynamics

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
R21 - Urban, Rural, and Regional Economics - - Household Analysis - - - Housing Demand
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Suzi Kerr & Dave Maré & William Power & Jason Timmins, 2001. "Internal Mobility in New Zealand," Treasury Working Paper Series 01/04, New Zealand Treasury. [Downloadable!]
  2. Suzi Kerr & Megan Claridge & Dominic Milicich, . "Devolution and the New Zealand Resource Management Act," Treasury Working Paper Series 98/07, New Zealand Treasury. [Downloadable!]
  3. David C Mare & Peter Mawson & Jason Timmins, 2001. "Deprivation in New Zealand: Regional Patterns and Changes," Treasury Working Paper Series 01/09, New Zealand Treasury. [Downloadable!]
  4. McDonald, Ronald & Taylor, Mark P, 1993. "Regional House Prices in Britain: Long-Run Relationships and Short-Run Dynamics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(1), pages 43-55, February.
  5. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March. [Downloadable!] (restricted)
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  6. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March. [Downloadable!] (restricted)
  7. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I. [Downloadable!] (restricted)
  8. Wai Kin Choy & David C Mare & Peter Mawson, 2002. "Modelling Regional Labour Market Adjustment in New Zealand," Treasury Working Paper Series 02/01, New Zealand Treasury. [Downloadable!]
  9. Sheppard, Stephen, 1999. "Hedonic analysis of housing markets," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 41, pages 1595-1635 Elsevier. [Downloadable!] (restricted)
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  10. Suzi Kerr & Jason Timmins, 2000. "Economic Geography and Spatial Statistics: Theory and Empirics of New Zealand Regions," Treasury Working Paper Series 00/11, New Zealand Treasury. [Downloadable!]
  11. Case, Karl E. & Mayer, Christopher J., 1996. "Housing price dynamics within a metropolitan area," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 387-407, June. [Downloadable!] (restricted)
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  12. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2003. "Housing and Economic Adjustment," Urban/Regional 0310006, EconWPA. [Downloadable!]
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  13. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May. [Downloadable!] (restricted)
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  14. Can, Ayse, 1992. "Specification and estimation of hedonic housing price models," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 453-474, September. [Downloadable!] (restricted)
  15. Patrick Bajari & Matthew E. Kahn, 2003. "Estimating Housing Demand with an Application to Explaining Racial Segregation in Cities," NBER Working Papers 9891, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Pain, Nigel & Westaway, Peter, 1997. "Modelling structural change in the UK housing market: A comparison of alternative house price models," Economic Modelling, Elsevier, vol. 14(4), pages 587-610, October. [Downloadable!] (restricted)
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  17. Fisher, Ronald C., 1982. "Income and grant effects on local expenditure: The flypaper effect and other difficulties," Journal of Urban Economics, Elsevier, vol. 12(3), pages 324-345, November. [Downloadable!] (restricted)
  18. Dubin, Robin A., 1992. "Spatial autocorrelation and neighborhood quality," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 433-452, September. [Downloadable!] (restricted)
  19. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
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  20. Feldstein, Martin S, 1977. "The Surprising Incidence of a Tax on Pure Rent: A New Answer to an Old Question," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 349-60, April. [Downloadable!] (restricted)
  21. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers 2813, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  22. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September. [Downloadable!] (restricted)
  23. Jorgenson, Dale W & Yun, Kun-Young, 1990. "Tax Reform and U.S. Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S151-93, October. [Downloadable!] (restricted)
  24. W. Erwin Diewert & Denis A. Lawrence, 1996. "The Deadweight Costs of Taxation in New Zealand," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 658-73, April. [Downloadable!] (restricted)
  25. Capozza, Dennis R. & Seguin, Paul J., 1996. "Expectations, efficiency, and euphoria in the housing market," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 369-386, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Arthur Grimes & Suzi Kerr & Andrew Aitken, 2004. "Bi-Directions Impacts of Economic, Social and Environmental Changes and the New Zealand Housing Market," Working Papers 04_09, Motu Economic and Public Policy Research. [Downloadable!]
    Other versions:
  2. Arthur Grimes & Andrew Aitken, 2004. "What's the Beef with House Prices? Economic Shocks and Local Housing Markets," Working Papers 04_08, Motu Economic and Public Policy Research. [Downloadable!]
    Other versions:
  3. Michelle Poland & David C Maré, 2005. "Defining Geographic Communities," Urban/Regional 0509016, EconWPA. [Downloadable!]
    Other versions:
  4. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, EconWPA. [Downloadable!]
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  5. Arthur Grimes, 2005. "Regional and Industry Cycles in Australasia: Implications for a Common Currency," Macroeconomics 0509020, EconWPA. [Downloadable!]
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  6. Kelly Lock & Suzi Kerr, 2007. "Nutrient Trading in Lake Rotorua: Where are we Now?," Working Papers 07_06, Motu Economic and Public Policy Research. [Downloadable!]
  7. Arthur Grimes, 2005. "Intra & Inter-Regional Industry Shocks: A New Metric with an Application to Australasian Currency Union," Macroeconomics 0509019, EconWPA. [Downloadable!]
  8. Arthur Grimes & David C. Maré & Melanie Morten, 2006. "Defining Areas: Linking Geographic Data in New Zealand," Working Papers 06_07, Motu Economic and Public Policy Research. [Downloadable!]
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