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Welfare Effects of Housing Transaction Taxes: A Quantitative Analysis with an Assignment Model

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  • Niku Määttänen
  • Marko Terviö

Abstract

We evaluate the welfare cost of housing transaction taxes with a new assignment model-based framework, where welfare effects are driven by distortions in the matching of houses and households. We calibrate the model with data from the Helsinki metropolitan region to assess the impact of a reform where an ad valorem transaction tax is replaced with a revenue-equivalent property tax. The aggregate welfare gain from this reform increases rapidly with the initial transaction tax rate, with the Laffer curve peaking at about 10%. The proportion of households that lose out from the reform is nevertheless increasing in the tax rate. We compare our model-based counterfactual aggregate welfare results with welfare calculations based on reduced-form estimates from previous policy evaluation studies; they are broadly in line, despite the latter using data from different housing markets at various levels and changes of the tax rate.

Suggested Citation

  • Niku Määttänen & Marko Terviö, 2022. "Welfare Effects of Housing Transaction Taxes: A Quantitative Analysis with an Assignment Model," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1566-1599.
  • Handle: RePEc:oup:econjl:v:132:y:2022:i:644:p:1566-1599.
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    File URL: http://hdl.handle.net/10.1093/ej/ueab080
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    Cited by:

    1. Bontemps, Christian & Cherbonnier, Frédéric & Magnac, Thierry, 2023. "Reducing transaction taxes on housing in highly regulated economies”," TSE Working Papers 23-1486, Toulouse School of Economics (TSE).
    2. Elisabeth Arnold & Katharina Falkner & Margit Schratzenstaller & Franz Sinabell, 2023. "Auswirkungen des Flächenverbrauchs für die Versorgungssicherheit und steuerliche Instrumente zu dessen Eindämmung," WIFO Studies, WIFO, number 71122, February.

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