Evaluating Durable Public Good Provision using Housing Prices

Stephen Coate

No 18767, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent empirical work in public finance uses the housing price response to public investments to assess the efficiency of local durable public good provision. This paper investigates the theoretical foundations for this technique. In the context of a novel theoretical model developed to study the issue, it shows that there is little justification for the technique if citizens have rational expectations concerning future investment in their communities. An example in which investment is chosen by a budget-maximizing bureaucrat is developed to show why the technique can falsely predict under-provision. The technique is valid, however, when citizens have adaptive expectations, believing that whatever provision level that currently prevails will be maintained indefinitely.

JEL-codes: H41 H43 H75 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-pub and nep-ure
Note: PE POL
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Citations: View citations in EconPapers (4)

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