Public Debt, Property Values and Migration

Christian Schultz () and Tomas Sjostrom

No 99-10, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: Migration gives rise to an externality across districts that issue local public debt. Unless taxation is entirely in the form of property taxes, local debt is not fully capitalized in property values (even with a competitive land market) and each district over-accumulates debt. A common debt limit leads to a Pareto improvement. The externality is more severe the greater is the number of communities, and the smaller is the proportion of local tax revenue derived from a property tax. If each community can choose its tax instruments, it will have no property tax.

Date: 1999-10
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