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

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  • Ben Dachis
  • Gilles Duranton
  • Matthew A. Turner

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.

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Bibliographic Info

Article provided by Oxford University Press in its journal Journal of Economic Geography.

Volume (Year): 12 (2012)
Issue (Month): 2 (March)
Pages: 327-354

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Handle: RePEc:oup:jecgeo:v:12:y:2012:i:2:p:327-354

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  1. Jos Van Ommeren & Michiel Van Leuvensteijn, 2005. "New Evidence of the Effect of Transaction Costs on Residential Mobility," Journal of Regional Science, Wiley Blackwell, vol. 45(4), pages 681-702.
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Cited by:
  1. Christian A. L. Hilber & Teemu Lyytikäinen, 2012. "The Effect of the UK Stamp Duty Land Tax on Household Mobility," SERC Discussion Papers 0115, Spatial Economics Research Centre, LSE.
  2. Arne Feddersen & Wolfgang Maennig, 2010. "Sectoral Labour Market Effects of the 2006 FIFA World Cup," Working Papers 033, Chair for Economic Policy, University of Hamburg.
  3. Gabriel Ahlfeldt & Wolfgang Maennig & Felix J. Richter, 2013. "Urban Renewal after the Berlin Wall," CESifo Working Paper Series 4506, CESifo Group Munich.
  4. Steve Gibbons & Max Nathan & Henry G. Overman, 2014. "Evaluating Spatial Policies," SERC Policy Papers 012, Spatial Economics Research Centre, LSE.
  5. Davidoff, Ian & Leigh, Andrew, 2013. "How Do Stamp Duties Affect the Housing Market?," IZA Discussion Papers 7463, Institute for the Study of Labor (IZA).
  6. Albert Solé-Ollé & Elisabet Viladecans-Marsal, 2011. "Local spending and the housing boom," Working Papers 2011/27, Institut d'Economia de Barcelona (IEB).
  7. Guido de Blasio & Samuele Poy, 2014. "The impact of local minimum wages on employment: evidence from Italy in the 1950s," Temi di discussione (Economic working papers) 953, Bank of Italy, Economic Research and International Relations Area.
  8. Arne Feddersen & Wolfgang Maennig, 2010. "Mega-Events and Sectoral Employment: The Case of the 1996 Olympic Games," Working Papers 035, Chair for Economic Policy, University of Hamburg.

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