Public debts capitalize into property prices: empirical evidence for a new perspective on debt incidence

David Stadelmann and Reiner Eichenberger ()

International Tax and Public Finance, 2014, vol. 21, issue 3, 498-529

Abstract: In economies with reasonably mobile individuals, the demand for property depends on current as well as future taxes and public services. As a consequence, the current level of public net debts, i.e. public debts minus assets, should capitalize into property prices. While debt capitalization has been unduly disregarded in the academic literature and policy debates, the Swiss Canton of Zurich provides an institutional setting for identification. Our results imply that public net debts capitalize into property prices. The extent of debt capitalization seems to be substantial but it widely varies over estimation strategies. The existence of debt capitalization offers new perspectives on debt incidence. Copyright Springer Science+Business Media New York 2014

Keywords: Capitalization; Public debts; Taxes; Local public goods; H74; R51; H00 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10797-013-9276-x

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