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How Do Stamp Duties Affect the Housing Market?

Ian Davidoff () and Andrew Leigh
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Ian Davidoff: International Monetary Fund

No 7463, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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.

Keywords: tax incidence; land sales taxation; residential mobility (search for similar items in EconPapers)
JEL-codes: H22 H24 H71 R21 R23 R28 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-06
New Economics Papers: this item is included in nep-ure
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