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

By Christian A. L. Hilber, Teemu Lyytikainen and Wouter Vermeulen

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

Topics: HD Industries. Land use. Labor, HJ Public Finance, JN101 Great Britain
Publisher: Spatial Economics Research Centre (SERC), London School of Economics and Political Science
Year: 2010
OAI identifier: oai:eprints.lse.ac.uk:31778
Provided by: LSE Research Online

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