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Housing transfer taxes and household mobility: Distortion on the housing or labour market?

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  • Teemu Lyytikäinen
  • Hilber
  • A. L. Christian

Abstract

We estimate the effect of the UK Stamp Duty Land Tax on household mobility using micro data. Exploiting a discontinuity in the tax schedule as a quasiexperimental setting, we isolate the impact of the stamp duty from other determinants of mobility. We compare homeowners with self-assessed house values on either sides of a cut-off value where the tax rate increases from 1 to 3 percent and find that a higher stamp duty strongly negatively affects their propensity to move. The 2 percentage-point increase in the stamp duty reduces the annual rate of mobility by between 2 and 3 percentage-points or about 30 percent. This adverse effect is confined to short-distance and non-job related moves, suggesting a distortion in the housing rather than the labour market. As a cross-validation check, we also analyse the distribution of actual transaction prices and find that the tax rate increase reduces the volume of sales by roughly 30 percent.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 47.

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Date of creation: 09 Aug 2013
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Handle: RePEc:fer:wpaper:47

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Keywords: Stamp duty; housing transfer taxes; transaction costs; homeownership; household mobility;

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References

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  1. Jakob Roland Munch & Michael Rosholm & Michael Svarer, 2006. "Are Homeowners Really More Unemployed?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(514), pages 991-1013, October.
  2. M. van Leuvensteijn & Pierre Koning, 2004. "The Effect of Home-ownership on Labor Mobility in The Netherlands," Working Papers, Utrecht School of Economics 04-01, Utrecht School of Economics.
  3. Sam Schulhofer-Wohl, 2010. "Negative equity does not reduce homeowners' mobility," Working Papers, Federal Reserve Bank of Minneapolis 682, Federal Reserve Bank of Minneapolis.
  4. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 669-723.
  5. Wouter Vermeulen & Christian A. L. Hilber & Teemu Lyytikäinen, 2011. "Capitalization of Central Government Grants into Local House Prices," CPB Discussion Paper 167, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Jakob Roland Munch & Michael Rosholm & Michael Svarer, 2006. "Home Ownership, Job Duration, and Wages," Economics Working Papers, School of Economics and Management, University of Aarhus 2006-06, School of Economics and Management, University of Aarhus.
  7. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 48(2), pages 281-355, June.
  8. Jakob Roland Munch & Michael Svarer, . "Rent Control and Tenancy Duration," Economics Working Papers, School of Economics and Management, University of Aarhus 2001-7, School of Economics and Management, University of Aarhus.
  9. Ian Davidoff & Andrew Leigh, 2013. "How Do Stamp Duties Affect the Housing Market?," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 89(286), pages 396-410, 09.
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  15. Christian A. L. Hilber & Teemu Lyytikainen & Wouter Vermeulen, 2010. "Capitalization of central government grants into local house prices: panel data evidence from England," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 31778, London School of Economics and Political Science, LSE Library.
  16. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2011. "Housing Busts and Household Mobility: An Update," NBER Working Papers 17405, National Bureau of Economic Research, Inc.
  17. Lee, David S. & Card, David, 2008. "Regression discontinuity inference with specification error," Journal of Econometrics, Elsevier, Elsevier, vol. 142(2), pages 655-674, February.
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  20. Coulson, N. Edward & Fisher, Lynn M., 2009. "Housing tenure and labor market impacts: The search goes on," Journal of Urban Economics, Elsevier, vol. 65(3), pages 252-264, May.
  21. Harminder Battu & Ada Ma & Euan Phimister, 2008. "Housing Tenure, Job Mobility and Unemployment in the UK," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(527), pages 311-328, 03.
  22. Emmanuel Saez, 1999. "Do Taxpayers Bunch at Kink Points?," NBER Working Papers 7366, National Bureau of Economic Research, Inc.
  23. Benjamin Dachis, 2012. "Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 364, October.
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Citations

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Cited by:
  1. Eerola, Essi & Määttänen, Niku, 2013. "Matching in the housing market with risk aversion and savings," ETLA Working Papers, The Research Institute of the Finnish Economy 3, The Research Institute of the Finnish Economy.
  2. Sejeong Ha & Christian A. L. Hilber, 2013. "Do Long Distance Moves Discourage Homeownership? Evidence from England," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0141, Spatial Economics Research Centre, LSE.
  3. Benjamin Dachis, 2012. "Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 364, October.

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