Suppose, as a result of the imposition of a 5 percent local property tax, the rent on a parcel of property increases from $12,000 to $12,500 per year. Assuming that the current rate of discount is 8 percent and that the property will last forever, calculate the value of the property before and after the imposition of the tax. How much of the tax is capitalized and how much of it is shifted to others rather than absorbed by the owner of the property at the time the tax is imposed?
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