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The Impact of Fiscal Illusion on Housing Values: An Australian Test of the Debt Illusion Hypothesis

Dollery, Brian E. & Worthington, Andrew C. (1995) The Impact of Fiscal Illusion on Housing Values: An Australian Test of the Debt Illusion Hypothesis. Public Budgeting and Finance, 15(3), pp. 63-73.

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Abstract

The debt illusion hypothesis holds that taxpayers may underestimate the present discounted value of future tax liabilities under debt finance. The empirical question arises as to whether debt illusion at the local government level can affect housing values. This proposition is evaluated by investigating whether local fiscal variables are fully capitalised into housing values by means of a pooled time-series, cross-sectional analysis of 27 metropolitan municipalities in Sydney, Australia, for the period 1989 to 1991. The results indicate that municipal debt is under-capitalised into housing values, and accordingly suggests that local government expenditure may be systematically biased upwards.

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ID Code: 2792
Item Type: Journal Article
Keywords: Fiscal illusion, debt illusion, taxation, local government
DOI: 10.1111/1540-5850.01047
ISSN: 1540-5850
Subjects: Australian and New Zealand Standard Research Classification > STUDIES IN HUMAN SOCIETY (160000) > POLITICAL SCIENCE (160600) > Political Science not elsewhere classified (160699)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Public Economics- Taxation and Revenue (140215)
Australian and New Zealand Standard Research Classification > STUDIES IN HUMAN SOCIETY (160000) > POLICY AND ADMINISTRATION (160500) > Public Policy (160510)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200) > Banking Finance and Investment not elsewhere classified (150299)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 1995 Blackwell Publishing
Copyright Statement: The definitive version is available at www.blackwell-synergy.com
Deposited On: 05 Dec 2005
Last Modified: 05 Jan 2011 23:26

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