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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.

Suggested Citation

  • Carlos Medina & Leonardo Morales, 2006. "Stratification and Public Utility Services in Colombia: Subsidies to Households or Distortions on Housing Prices?," Borradores de Economia 422, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:422
    DOI: 10.32468/be.422
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    Cited by:

    1. Carlos Medina & Leonardo Morales & Jairo Nuñez, 2008. "Quality of Life in Urban Neighborhoods in Colombia:The Cases of Bogotá and Medellín," Borradores de Economia 5126, Banco de la Republica.
    2. Fan Li & Wenche Wang & Zelong Yi, 2018. "Cross-Subsidies and Government Transfers: Impacts on Electricity Service Quality in Colombia," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    3. Camila Casas, 2014. "Subsidies to Electricity Consumption and Housing Demand in Bogotá," Borradores de Economia 847, Banco de la Republica de Colombia.
    4. 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,Facultad de Economía, CEDE, February.
    5. Leonardo Fabio Morales, 2015. "Peer Effects on a Fertility Decision: an Application for Medellín, Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 119-159, February.
    6. Shaun McRae, 2015. "Infrastructure Quality and the Subsidy Trap," American Economic Review, American Economic Association, vol. 105(1), pages 35-66, January.
    7. Carlos Medina & Leonardo Fabio Morales, 2007. "Demanda por Servicios Públicos Domiciliarios en Colombia y Subsidios: Implicaciones sobre el Bienestar," Borradores de Economia 4293, Banco de la Republica.
    8. Alejandro Gaviria & Carlos Medina & Leonardo Morales & Jairo Núñez, 2010. "The Cost of Avoiding Crime: The Case of Bogotá," NBER Chapters, in: The Economics of Crime: Lessons For and From Latin America, pages 101-132, National Bureau of Economic Research, Inc.
    9. Lina Cardona-Sosa & Carlos Medina & Jairo Nuñez Méndez, 2017. "Impacto de las Transferencias Condicionadas sobre el Mercado de Crédito El caso de Familias en Acción en Colombia," Borradores de Economia 995, Banco de la Republica de Colombia.

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    More about this item

    Keywords

    targeting of subsidies; Incidence; stratification; segregation; hedonic price models; regression discontinuity design.;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H4 - Public Economics - - Publicly Provided Goods
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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