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Real Estate Prices and the Importance of Bequest Taxation

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  • Giorgio Bellettini
  • Filippo Taddei

Abstract

Taxation of bequests and donations is an important determinant of real estate prices. We show that, ceteris paribus, a decrease in taxes on inter vivos donations and bequests brings about an increase in real estate prices. We provide a general equilibrium rationalization in the context of OLG economies featuring intergenerational altruism. This has relevant policy implications. We test the predictions of our theory employing a unique policy shock: the abolition of bequest and donation taxation that took place in Italy in 2001. Considering this policy shift provides the first evidence that a drastic reduction in bequest and donation taxation significantly increased real estate prices. Our estimates suggest that the 2001 abolition of taxation on bequests and donations alone led to an appreciation of residential real estate in excess of 10%.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-03/cesifo1_wp2577.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2577.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2577

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Keywords: real estate prices; donations; bequest taxation;

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References

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  1. Jonathan McCarthy & Richard W. Peach, 2004. "Are home prices the next "bubble"?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 1-17.
  2. Bruce, Donald & Holtz-Eakin, Douglas, 1999. "Fundamental Tax Reform and Residential Housing," Journal of Housing Economics, Elsevier, Elsevier, vol. 8(4), pages 249-271, December.
  3. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
  4. Loriana Pelizzon & Guglielmo Weber, 2006. "Are Household Portfolios Efficient? An Analysis Conditional on Housing," Working Papers 2006_55, Department of Economics, University of Venice "Ca' Foscari".
  5. Emmanuel Farhi & Ivan Werning, 2006. "Progressive Estate Taxation," NBER Working Papers 12600, National Bureau of Economic Research, Inc.
  6. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 19(4), pages 67-92, Fall.
  7. Edward L. Glaeser & Joseph Gyourko & Raven Saks, 2005. "Why Have Housing Prices Gone Up?," NBER Working Papers 11129, National Bureau of Economic Research, Inc.
  8. Carolina Fugazza & Massimo Guidolin & Giovanna Nicodano, 2006. "Investing for the long-run in European real estate," Working Papers, Federal Reserve Bank of St. Louis 2006-028, Federal Reserve Bank of St. Louis.
  9. Glaeser, Edward L & Gyourko, Joseph & Saks, Raven, 2005. "Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 48(2), pages 331-69, October.
  10. Werning, Ivan & Farhi, Emmanuel, 2007. "Inequality and Social Discounting," Scholarly Articles 3451391, Harvard University Department of Economics.
  11. Patric H. Hendershott & Gwilym Pryce, 2005. "The Sensitivity of Homeowner Leverage to the Deductibility of Home Mortgage Interest," NBER Working Papers 11489, National Bureau of Economic Research, Inc.
  12. Bernheim, B. Douglas & Lemke, Robert J. & Scholz, John Karl, 2004. "Do estate and gift taxes affect the timing of private transfers?," Journal of Public Economics, Elsevier, Elsevier, vol. 88(12), pages 2617-2634, December.
  13. Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
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Cited by:
  1. Jappelli, Tullio & Padula, Mario & Pica, Giovanni, 2010. "Estate Taxation and Intergenerational Transfers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7701, C.E.P.R. Discussion Papers.
  2. Norifumi Yukutake & Shinichiro Iwata & Takako Idee, 2011. "Strategic Interaction between Inter Vivos Gifts and Housing Acquisition," Global COE Hi-Stat Discussion Paper Series, Institute of Economic Research, Hitotsubashi University gd11-201, Institute of Economic Research, Hitotsubashi University.
  3. Elek, Péter & Kiss, Áron, 2010. "Az ingatlanadó a magyar adórendszerben. Elméleti megfontolások és mikroszimulációs elemzés
    [Real-estate taxation in the Hungarian tax system. Theoretical considerations and a micro-simulati
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 389-411.

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