By using the 2002 case of fraud in the Danish municipality Farum by then mayor Peter Brixtofte as an exogenous shock to public debt of 1 billion DKK, I estimate the effect of public debt on house prices. I find that the average home ownership lost about 570,000 DKK or as much as 29% of the average house price in the municipality. Furthermore, I document that the aggregate house price loss of 2.1 billion DKK greatly exceeds the increase in public debt of 1 billion DKK. I find that the drop in house prices is sustained 1 year, indicating that the housing market initially overreacts but the overreactions is dampened over time.
|Number of pages||24|
|Publication status||Published - 2014|
|Event||European Economic Association & Econometric Society 2014 Parallel Meetings - Toulouse, France|
Duration: 25 Aug 2014 → 29 Aug 2014
|Conference||European Economic Association & Econometric Society 2014 Parallel Meetings|
|Period||25/08/2014 → 29/08/2014|