Rational pricing responses of developers to supply shocks: Evidence from Singapore

Mi Diao, Yi Fan () and Tien Foo Sing

Journal of Economic Behavior & Organization, 2021, vol. 190, issue C, 802-815

Abstract: Singapore's government imposed a new transaction tax in the form of an Additional Buyer's Stamp Duty (ABSD) on developers who fail to sell all units within 5 years for projects that commenced after 2011. We find significant evidence that the ABSD shock triggers rational responses by private developers, who cut prices to clear unsold housing units. Developers of the ABSD-affected projects strategically cut prices by 2.8% to sell units in year 5 relative to other projects that are not subject to the ABSD. We also find that the treatment effects come mostly from three groups of developers, which include large developers, small project developers and local developers. Liquidity constraints and differential reference points are two potential channels that drive the differential price cutting responses of developers to the policy shock in the housing market.

Keywords: Rational responses; Transaction tax; Liquidity constraint; Reference points; Government intervention; Private Housing Markets (search for similar items in EconPapers)
JEL-codes: D22 D23 R31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016726812100367X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:190:y:2021:i:c:p:802-815

DOI: 10.1016/j.jebo.2021.08.025

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().