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The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto

Benjamin Dachis (), Gilles Duranton () and Matthew Turner ()

Working Papers from University of Toronto, Department of Economics

Abstract: Taxes levied on the sale or purchase of real estate are pervasive but little studied. By exploiting a natural experiment arising from Toronto’s imposition of a Land Transfer Tax (LTT) in early 2008, we estimate the impact of real estate transfer taxes on the market for single family homes. Our data show that Toronto’s 1.1% tax caused a 15% decline in the number of sales and a decline in housing prices about equal to the tax. Relative to an equivalent property tax, the associated welfare loss is substantial, about $ 1 for every $ 8 in tax revenue. The magnitude of this welfare loss is comparable to those associated with better known interventions in the housing market. Unlike many possible tax reforms, eliminating existing LTTs in favour of revenue equivalent property taxes appears straightforward.

Keywords: Land transfer tax; property tax; land regulation (search for similar items in EconPapers)
JEL-codes: R21 R51 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2011-02-14
New Economics Papers: this item is included in nep-acc, nep-agr, nep-pbe and nep-ure
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Journal Article: The effects of land transfer taxes on real estate markets: evidence from a natural experiment in Toronto (2012) Downloads
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