How Do Stamp Duties Affect the Housing Market?

Research, Preprint OPEN
Davidoff, Ian ; Leigh, Andrew (2013)
  • Publisher: Institute for the Study of Labor (IZA) Bonn
  • Subject: tax incidence, land sales taxation, residential mobility | H71 | tax incidence | H22 | residential mobility | H24 | R21 | land sales taxation | R23 | R28
    • jel: jel:H71 | jel:H22 | jel:R23 | jel:R21 | jel:R28 | jel:H24
      ddc: ddc:330

Land transfer taxes are a substantial portion of the cost of moving house in many developed countries. Since stamp duties are endogenous with respect to the house price, we create an instrumental variable that is the stamp duty on a property, given that postcode's starting house price and the national house price trend. In a specification with postcode and year fixed effects, this instrument effectively captures policy changes and nonlinearities in the stamp duty schedule. We find that the impact of an increase in the tax rate is to lower house prices, suggesting that the economic incidence of the tax falls on the seller. We also observe impacts of stamp duty on housing turnover. A 10 per cent increase in stamp duty lowers turnover by 3 per cent in the first year, and by 6 per cent if sustained over a 3 year period.
  • References (18)
    18 references, page 1 of 2

    Australian Bureau of Statistics (1995), Taxation Revenue, Australia, 1994-95, Cat No 5506.0, ABS, Canberra.

    Australian Bureau of Statistics (2012a), Building Activity Australia, Cat No 8572.0, ABS, Canberra.

    Australian Bureau of Statistics (2012b), Taxation Revenue, Australia, 2010-11, Cat No 5506.0, ABS, Canberra.

    Australian Government. (2010), Australia's future tax system: final report, Australian Government, Canberra.

    Benjamin, J.D., Coulson, N.E. and Yang S.X. (1993), 'Real Estate Transfer Taxes and Property Values: The Philadelphia Story', Journal of Real Estate Finance and Economics, 7, 151-157.

    Bertrand, M., Duflo, E. and Mullainathan, S. (2004), 'How Much Should We Trust Differences-in-Differences Estimates?', Quarterly Journal of Economics, 119, 249- 275

    Brueckner, J. (1997), 'Infrastructure financing and urban development: the economics of impact fees'; Journal of Public Economics, 66 383-407.

    Dachis, B., Duranton, G and Turner, M.A (2012), 'The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Torontoā€¯, Journal of Economic Geography, 12, 327-354.

    Dietz, R.D. and Haurin, D.R. (2003), 'The Social and Private Micro-Level Consequences of Homeownership', Journal of Urban Economics, 54, 401-450.

    The Economist, (2011) 'House-Price Indicators'. Available from: http://www.economist.com/blogs/dailychart/2011/11/global-house-prices.

  • Metrics
    No metrics available
Share - Bookmark