The Impact of Local Subsidies and Taxes on Land Prices. Evidence of Geographic Targeting of Subsidies in Bogotá

We study the presence of capitalization of local fiscal and social policies in house prices. The local property tax and the public utility fees in Bogotá depend on a classification of all blocks in the city into six groups (estratos socioeconómicos) - a redistributive system in which some groups pay higher rates to fund the lower rates of other groups on public utilities. The tariff assignment mechanism provides a strong identification strategy that uses Regression Discontinuity to assess the capitalization effect of being classified in a group with lower rates. Contrary to previous findings, we find a negative effect, i.e., a house paying lower taxes and fees, in fact, actually has a lower price. We observe that the policy also impacted other house characteristics, like building quality. These results highlight the importance of taking other general equilibrium effects into account in any capitalization analysis