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How do Households Value the Future? Evidence from Property Taxes

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  • Pinchbeck, E.
  • Koster, H. R. A.

Abstract

Despite the near ubiquity of inter-temporal choice, there is little consensus on the rate at which individuals trade present and future costs and benefits. We contribute to this debate by estimating discount rates from extensive data on housing transactions and spatio-temporal variation in property taxes in England. Our findings imply longterm average discount rates that are between 3 and 4%. The close correspondence to prevailing market interest rates gives little reason to suggest that households misoptimise by materially undervaluing very long term financial flows in this high stakes context.

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  • Pinchbeck, E. & Koster, H. R. A., 2018. "How do Households Value the Future? Evidence from Property Taxes," Working Papers (18/06), Department of Economics, City University London.
    • Handle: RePEc:cty:dpaper:(18/06)
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    3. Gaigné, Carl & Koster, Hans R.A. & Moizeau, Fabien & Thisse, Jacques-François, 2022. "Who lives where in the city? Amenities, commuting and income sorting," Journal of Urban Economics, Elsevier, vol. 128(C).
    4. Gaigne, Carl & Koster, Hans R.A. & Moizeau, Fabien & Thisse, Jacques-François, 2020. "Income Sorting Across Space: The Role of Amenities and Commuting Costs," Working Papers 302579, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    5. Ahlfeldt, Gabriel & Bald, Fabrian & Roth, Duncan & Seidel, Tobias, 2020. "Quality of life in a dynamic spatial model," CEPR Discussion Papers 15594, C.E.P.R. Discussion Papers.
    6. Giertz, Seth H. & Ramezani, Rasoul & Beron, Kurt J., 2021. "Property tax capitalization, a case study of Dallas County," Regional Science and Urban Economics, Elsevier, vol. 89(C).
    7. Gibbons, Stephen & Heblich, Stephan & Timmins, Christopher, 2021. "Market tremors: Shale gas exploration, earthquakes, and their impact on house prices," Journal of Urban Economics, Elsevier, vol. 122(C).

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    More about this item

    Keywords

    housing; property taxes; discount rate; capitalisation rate; undervaluation;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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