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

Hilber, Christian A. L., Lyytikainen, Teemu and Vermeulen, Wouter (2011) Capitalization of central government grants into local house prices: panel data evidence from England. Regional Science and Urban Economics, 41 (4). pp. 394-406. ISSN 0166-0462

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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 an LA may mainly benefit the typically better off property owners (homeowners and absentee landlords) in that LA.

Item Type: Article
Official URL: http://www.elsevier.com/locate/regec
Additional Information: © 2011 Elsevier
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HJ Public Finance
Journal of Economic Literature Classification System: H - Public Economics > H2 - Taxation, Subsidies, and Revenue
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations
H - Public Economics > H8 - Miscellaneous Issues > H81 - Governmental Loans, Loan Guarantees, and Credits
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
Sets: Departments > Geography and Environment
Research centres and groups > Spatial Economics Research Centre
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 27 Jan 2011 10:07
URL: http://eprints.lse.ac.uk/31525/

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