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Capitalization of central government grants into local house prices: panel data evidence from England

  • Christian A. L. Hilber

    ()

    (London School of Economics)

  • Teemu Lyytikäinen

    ()

    (London School of Economics)

  • Wouter Vermeulen

    ()

    (CPB Netherlands Bureau of Economic Policy Analysis & VU University)

We explore the impact of central government grants on local house prices in England using a panel data set of local authorities (LAs) from 2001 to 2008. Electoral targeting of grants to LAs by the incumbent national government provides an exogenous source of variation in grants that we exploit to identify their causal effect on house prices. Our results indicate substantial or even full capitalization. We also find that house prices respond more strongly in locations in which new construction is constrained by physical barriers. Our results imply that (i) during our sample period grants were largely used in a way that is valued by the marginal homebuyer and (ii) increases in grants to a LA may mainly benefit the typically better off property owners (homeowners and absentee landlords) in that LA.

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File URL: http://ieb.ub.edu/aplicacio/fitxers/2010/9/Doc2010-32.pdf
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Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/32.

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Length: 35 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ieb:wpaper:2010/9/doc2010-32
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  1. Wouter Vermeulen & Christian A.L. Hilber, 2012. "The Impact of Supply Constraints on House Prices in England," CPB Discussion Paper 219, CPB Netherlands Bureau for Economic Policy Analysis.
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