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Consequences of Debt Capitalization: Property Ownership and Debt versus Tax Choice

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  • David Stadelmann

    () (University of Fribourg, Department of Economics, Bd. de Pérolles 90, 1700 Fribourg, Switzerland; CREMA—Center for Research in Economics, Management and the Arts, Switzerland
    University of Fribourg, Department of Economics, Bd. de Pérolles 90, 1700 Fribourg, Switzerland; CREMA—Center for Research in Economics, Management and the Arts, Switzerland)

Abstract

Public debts capitalize into property prices. Thus, they are a burden to the present generation who owns the devalued property. This largely neglected fact has important consequences for the tax versus debt choice. Property owners suffer more from the debt burden and, thus, have a stronger preference for tax financing of government spending than tenants. As a consequence of the resulting democratic struggle between property owners and tenants, higher property ownership rates in a jurisdiction lead to less debt financing. We provide empirical support for this hypothesis by analyzing a cross section of the 171 communities in the Swiss Canton of Zurich in the year 2000.

Suggested Citation

  • David Stadelmann, 2012. "Consequences of Debt Capitalization: Property Ownership and Debt versus Tax Choice," Southern Economic Journal, Southern Economic Association, vol. 78(3), pages 976-998, January.
  • Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:976-998
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    File URL: http://dx.doi.org/10.4284/0038-4038-78.3.976
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    Cited by:

    1. repec:bla:kyklos:v:70:y:2017:i:1:p:42-69 is not listed on IDEAS
    2. Bernd Hayo & Florian Neumeier, 2017. "Public Attitudes toward Fiscal Consolidation: Evidence from a Representative German Population Survey," Kyklos, Wiley Blackwell, vol. 70(1), pages 42-69, February.
    3. Glaeser, Edward L. & Ponzetto, Giacomo A.M., 2014. "Shrouded costs of government: The political economy of state and local public pensions," Journal of Public Economics, Elsevier, vol. 116(C), pages 89-105.
    4. Robert C. MacKay, 2014. "Implicit Debt Capitalization in Local Housing Prices: An Example of Unfunded Pension Liabilities," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(1), pages 77-112, March.
    5. H. Spencer Banzhaf & Wallace E. Oates, 2013. "On Fiscal Illusion in Local Public Finance: Re-Examining Ricardian Equivalence and the Renter Effect," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 511-540, September.

    More about this item

    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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