Does Capitalization of Fiscal Variables Decrease Over Time?

Capitalization of fiscal packages at the local level is often criticized as a demand side phenomenon. We provide a theoretical model in which capitalization depends on the elasticity of housing supply and demand. When supply is perfectly elastic, capitalization does not persist over time. Using an empirical linear interaction model with panel and bootstrapping individual regression coefficients for yearly estimates, we analyze changes in capitalization of fiscal variables. Our findings indicate that there is only an insignificant absolute decrease in capitalization for tax rates. For aggregated expenditures we find on the contrary that capitalization becomes more pronounced over time