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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

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-423.

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Length: 30 pages
Date of creation: 14 Feb 2011
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-423

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Keywords: Land transfer tax; property tax; land regulation;

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  1. Jos Van Ommeren & Michiel van Leuvensteijn, 2003. "New evidence of the effect of transaction costs on residential mobility," ERSA conference papers ersa03p7, European Regional Science Association.
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Cited by:
  1. Feddersen, Arne & Maennig, Wolfgang, 2012. "Sectoral labour market effects of the 2006 FIFA World Cup," Labour Economics, Elsevier, vol. 19(6), pages 860-869.
  2. Gabriel M. Ahfeldt & Wolfgang Maennig & Felix J. Richter, 2013. "Urban Renewal after the Berlin Wall," SERC Discussion Papers 0151, Spatial Economics Research Centre, LSE.
  3. Steve Gibbons & Max Nathan & Henry G. Overman, 2014. "Evaluating Spatial Policies," SERC Policy Papers 012, Spatial Economics Research Centre, LSE.
  4. 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.
  5. 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.
  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. Teemu Lyytikäinen & Hilber & A. L. Christian, 2013. "Housing transfer taxes and household mobility: Distortion on the housing or labour market?," Working Papers 47, Government Institute for Economic Research Finland (VATT).
  8. Ian Davidoff & Andrew Leigh, 2013. "How Do Stamp Duties Affect the Housing Market?," The Economic Record, The Economic Society of Australia, vol. 89(286), pages 396-410, 09.

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