Ruhr Economic Papers
Ruhr Economic Papers #605
Local Governments’ Indebtedness and Its Impact on Real Estate Prices
RWI, 02/2016, 31 S./p., 8 Euro, ISBN 978-3-86788-702-1 DOI: 10.4419/86788702download
In this paper, we estimate the causal effect of public debt on real estate prices and rental prices. We identify shocks to investment credits of self-governed cities in Germany and control for potential benefits such as an increased supply of public goods, which might come in hand with increased indebtedness. Using spatial variation across self-governed cities allows us to estimate this effect. We find that shocks to public debt have a significant negative effect on apartment prices. Rental prices, on the other hand, do not seem to be affected by public debt. Tenants care more about the current and less about the future tax burden.
JEL-Classification: R30, R51
Keywords: Real estate prices; local government debt