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Fiscal Equalization and Capitalization: Evidence from a Policy Reform

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  • Wouter Vermeulen
  • Maarten Allers

Abstract

Fiscal equalization through the allocation of central government grants may have adverse distributional implications if these grants capitalize into house values. We investigate the impact of changes in grants induced by a reform of the Dutch grant system. Since this reform was implemented gradually and in two subsequent stages that targeted different policy domains, we are able to identify on the nonlinearity of its impact over time. As robustness checks, we identify on either stage separately, or on a reform of financing school buildings, which should have limited effects on house prices as additional funds came with an additional task for municipalities. Our results indicate full capitalization of grants. It follows that property owners were important beneficiaries in the municipalities that saw their grants increased because of disadvantageous socio-economic composition.

Suggested Citation

  • Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:245
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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