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Capitalization of central government grants into local house prices: panel data evidence from England

Author

Listed:
  • Christian A. L. Hilber

    (London School of Economics)

  • Teemu Lyytikäinen

    (London School of Economics)

  • Wouter Vermeulen

    (CPB Netherlands Bureau of Economic Policy Analysis & VU University)

Abstract

We explore the impact of central government grants on local house prices in England using a panel data set of local authorities (LAs) from 2001 to 2008. Electoral targeting of grants to LAs by the incumbent national government provides an exogenous source of variation in grants that we exploit to identify their causal effect on house prices. Our results indicate substantial or even full capitalization. We also find that house prices respond more strongly in locations in which new construction is constrained by physical barriers. Our results imply that (i) during our sample period grants were largely used in a way that is valued by the marginal homebuyer and (ii) increases in grants to a LA may mainly benefit the typically better off property owners (homeowners and absentee landlords) in that LA.

Suggested Citation

  • Christian A. L. Hilber & Teemu Lyytikäinen & Wouter Vermeulen, 2010. "Capitalization of central government grants into local house prices: panel data evidence from England," Working Papers 2010/32, Institut d'Economia de Barcelona (IEB).
    • Handle: RePEc:ieb:wpaper:doc2010-32
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    More about this item

    Keywords

    Local public finance; house prices; supply constraints; central government grants;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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