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Public debts capitalize into property prices: empirical evidence for a new perspective on debt incidence

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  • David Stadelmann

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  • Reiner Eichenberger

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Abstract

In economies with reasonably mobile individuals, the demand for property depends on current as well as future taxes and public services. As a consequence, the current level of public net debts, i.e. public debts minus assets, should capitalize into property prices. While debt capitalization has been unduly disregarded in the academic literature and policy debates, the Swiss Canton of Zurich provides an institutional setting for identification. Our results imply that public net debts capitalize into property prices. The extent of debt capitalization seems to be substantial but it widely varies over estimation strategies. The existence of debt capitalization offers new perspectives on debt incidence. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • David Stadelmann & Reiner Eichenberger, 2014. "Public debts capitalize into property prices: empirical evidence for a new perspective on debt incidence," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 498-529, June.
  • Handle: RePEc:kap:itaxpf:v:21:y:2014:i:3:p:498-529
    DOI: 10.1007/s10797-013-9276-x
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    References listed on IDEAS

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    Cited by:

    1. Baskaran, Thushyanthan, 2015. "The revenue and base effects of local tax hikes: Evidence from a quasi-experiment," Center for European, Governance and Economic Development Research Discussion Papers 257, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Capitalization; Public debts; Taxes; Local public goods; H74; R51; H00;

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • H00 - Public Economics - - General - - - General

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