Depreciation: a Dangerous Affair

Guido Cozzi

MPRA Paper from University Library of Munich, Germany

Abstract: What if the statutory fiscal depreciation of buildings was higher than their effective economic depreciation? This would imply that markets would value buildings more than their social fundamental value. I prove that this would allow house price bubbles to emerge and open the door to sudden crashes. This paper provides an example of how a misaligned fiscal policy measure could generate potentially destabilizing self-fulfilling prophecies even in an economy with fully rational and forward-looking individuals.

Keywords: House price bubbles; Fiscal depreciation; Sunspot equilibria. (search for similar items in EconPapers)
JEL-codes: E3 E6 R3 (search for similar items in EconPapers)
Date: 2017-02
New Economics Papers: this item is included in nep-hpe, nep-mac and nep-ure
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https://mpra.ub.uni-muenchen.de/77796/2/MPRA_paper_77796.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/81883/1/MPRA_paper_81883.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:77796

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