How Do Households Value the Future? Evidence from Property Taxes

Hans R.A. Koster; Edward W. Pinchbeck

doi:10.1257/pol.20200443

How Do Households Value the Future? Evidence from Property Taxes

Hans R.A. Koster^*
, Edward W. Pinchbeck

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-review

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Abstract

Despite the near ubiquity of intertemporal choice, there is little consensus on the rate at which individuals trade present and future costs and benefits. We contribute to this debate by estimating discount rates from extensive data on housing transactions and spatiotemporal variation in property taxes in England. Our findings imply long-term average net of growth nominal discount rates that are between 3 and 4 percent. The close correspondence to prevailing market interest rates gives little reason to suggest that households misoptimize by materially undervaluing very long-term financial flows in this highstakes context. (JEL D15, H71, R31)

Original language	English
Pages (from-to)	207-239
Number of pages	33
Journal	American Economic Journal: Economic Policy
Volume	14
Issue number	1
DOIs	https://doi.org/10.1257/pol.20200443
Publication status	Published - Feb 2022

Bibliographical note

Funding Information:
* Koster: Department of Spatial Economics, Vrije Universiteit Amsterdam, Higher School of Economics, and the Tinbergen Institute (email: [email protected]); Pinchbeck: Department of Economics, University of Birmingham (email: [email protected]). Lucas Davis was coeditor for this article. We thank Hayoung Kim for excellent research assistance. This work was part completed at the Centre for Economic Performance, which is funded by the ESRC under grant number ES/M010341/1. Further, Koster acknowledges support of the HSE University Basic Research Program. We are grateful for helpful comments and suggestions from two anonymous referees, Felipe Carozzi, Steve Gibbons, Vernon Henderson, Christian Hilber, Henry Overman, and Olmo Silva, as well as seminar participants at City University, London School of Economics, Kraks Fond Copenhagen, and the Universities of Exeter and Reading. This research contains HM Land Registry data © Crown copyright and database right 2020. This data is licensed under the Open Government Licence v3.0. It also relies on domestic energy performance certificates, which contain address information that is copyright of Royal Mail, and other information that is licensed under the Open Government Licence v3.0, and on home-level Council Tax band information, which is Crown copyright 2020; as well as National Statistics data © Crown copyright and database right 2020 and OS data © Crown copyright 2020. The authors do not have relevant or material financial interests that relate to the research described in this paper.

Publisher Copyright:
© 2022,American Economic Journal: Economic Policy.All Rights Reserved

Funding

* Koster: Department of Spatial Economics, Vrije Universiteit Amsterdam, Higher School of Economics, and the Tinbergen Institute (email: [email protected]); Pinchbeck: Department of Economics, University of Birmingham (email: [email protected]). Lucas Davis was coeditor for this article. We thank Hayoung Kim for excellent research assistance. This work was part completed at the Centre for Economic Performance, which is funded by the ESRC under grant number ES/M010341/1. Further, Koster acknowledges support of the HSE University Basic Research Program. We are grateful for helpful comments and suggestions from two anonymous referees, Felipe Carozzi, Steve Gibbons, Vernon Henderson, Christian Hilber, Henry Overman, and Olmo Silva, as well as seminar participants at City University, London School of Economics, Kraks Fond Copenhagen, and the Universities of Exeter and Reading. This research contains HM Land Registry data © Crown copyright and database right 2020. This data is licensed under the Open Government Licence v3.0. It also relies on domestic energy performance certificates, which contain address information that is copyright of Royal Mail, and other information that is licensed under the Open Government Licence v3.0, and on home-level Council Tax band information, which is Crown copyright 2020; as well as National Statistics data © Crown copyright and database right 2020 and OS data © Crown copyright 2020. The authors do not have relevant or material financial interests that relate to the research described in this paper.

Funders	Funder number
UK Research and Innovation
National Research University Higher School of Economics
Economic and Social Research Council	ES/M010341/1

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10.1257/pol.20200443

How Do Households Value the Future_Evidence from Property TaxesFinal published version, 1.41 MBLicence: Article 25fa Dutch Copyright Act

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Cite this

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abstract = "Despite the near ubiquity of intertemporal choice, there is little consensus on the rate at which individuals trade present and future costs and benefits. We contribute to this debate by estimating discount rates from extensive data on housing transactions and spatiotemporal variation in property taxes in England. Our findings imply long-term average net of growth nominal discount rates that are between 3 and 4 percent. The close correspondence to prevailing market interest rates gives little reason to suggest that households misoptimize by materially undervaluing very long-term financial flows in this highstakes context. (JEL D15, H71, R31)",

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How Do Households Value the Future? Evidence from Property Taxes

Abstract

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