Parametric and Nonparametric Analysis of Tax Changes

James Bugden, Iain Fraser, Jeffrey Racine and Robert Waschik

Department of Economics Working Papers from McMaster University

Abstract: In this paper we examine the net effect of several major tax changes in Australia on residential property prices. Specifically, we consider the announcement and introduction effects that resulted from several policy changes including the introduction of the Goods and Services Tax (GST) and the accompanying First Home Owner Grant (FHOG). Using a large data set of residential property sales in Melbourne, Australia, between 1992 and 2002 we estimate various models using parametric and nonparametric methods. While our parametric models suggest that the tax policy changes appear to have a statistically significant impact on house prices, no economically significant impact is detected by our nonparametric models, nor (upon closer inspection) by the parametric models themselves. Given the enormity of the sample size, this provides a telling example of the fundamental difference between statistical and economic significance and its implications for detecting government policy effectiveness.

Keywords: tax changes; housing; nonparametric methods; hedonic model (search for similar items in EconPapers)
JEL-codes: C14 R21 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-03
New Economics Papers: this item is included in nep-pbe and nep-ure
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Journal Article: Parametric and non-parametric analysis of tax changes (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2014-02

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