Capitalization of fiscal variables persists over time

Abstract

Capitalization of fiscal packages is often considered as a pure demand side phenomenon. House price premiums in fiscally attractive communities may lead to housing supply reactions and capitalization may disappear in the long‐run. However, if price differentials induced by fiscal variables do not lead to supply reactions, capitalization persists over time. Using an empirical linear interaction model, we analyse changes in capitalization of fiscal variables over time. Results indicate that capitalization of fiscal variables persists and capitalization rates do not change over time.