Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/214424
Authors: 
Stadelmann, David
Eichenberger, Reiner
Year of Publication: 
2008
Series/Report no.: 
CREMA Working Paper No. 2008-30
Abstract: 
Rational individuals know that present government debts transform into higher future taxes. The Ricardian equivalence implies that the burden of the debt is not shifted between generations because of compensating intergenerational transfers. While the assumptions for Ricardian equivalence to hold are quite demanding, we argue that there exists another equivalence mechanism which works also with non-altruistic individuals: Public debts capitalize into property values. Thus, communities with larger net debts exhibit, ceteris paribus, lower property prices. We provide empirical evidence for debt capitalization using unique data for the Swiss metropolitan area of Zurich.
Subjects: 
Capitalization
Public Debts
Ricardian Equivalence
Taxes
Local Public Goods
JEL: 
H74
R51
H00
Document Type: 
Working Paper

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