Housing bubbles and land planning corruption: evidence from Spain’s largest municipalities

Antonios Koumpias, Jorge Martinez-Vazquez () and Eduardo Sanz-Arcega

Applied Economic Analysis, 2021, vol. 30, issue 89, 132-150

Abstract: Purpose - The purpose of this paper is to quantify to what extent the housing bubble in the early-to-mid 2000s in Spain exacerbated land planning corruption among Spain’s largest municipalities. Design/methodology/approach - The authors exploit plausibly exogenous variation in housing prices induced by changes in local mortgage market conditions; namely, the rapid expansion of savings banks (Cajas de Ahorros). Accounting for electoral competition in the 2003–2007 and 2007–2009 electoral cycles among Spanish municipalities larger than 25,000 inhabitants, the authors estimate a positive relationship between housing prices and land planning corruption in municipalities with variation in savings bank establishments using instrumental variables techniques. Findings - A 1% increase in housing prices leads to a 3.9% points increase in the probability of land planning corruption. Moreover, absolute majority governments (not needing other parties’ support) are more susceptible to the incidence of corruption than non-majority ones. Two policy implications to address corruption emerge: enhance electoral competition and increase scrutiny over land planning decisions in sparsely populated. Originality/value - First empirical evidence of a formal link between the 2000s housing bubble in Spain and land planning corruption.

Keywords: Spain; Corruption; Housing bubbles; Savings banks; Land planning; H83; K42 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aeapps:aea-11-2020-0159

DOI: 10.1108/AEA-11-2020-0159

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