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Who Bears the Burden of Real Estate Transfer Taxes? Evidence from the German Housing Market

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  • Dolls, Mathias
  • Fuest, Clemens
  • Krolage, Carla
  • Neumeier, Florian

Abstract

This paper examines the effects of real estate transfer taxes (RETT) on house prices using a rich micro dataset on German properties covering the period from 2005 to 2018. We exploit a 2006 constitutional reform that allowed states to set their own RETT rates, leading to frequent increases in states' tax rates in subsequent years. Our monthly event study estimates indicate a price response that strongly exceeds the change in the tax burden for single transactions. I.e., twelve months after a reform, a one percentage point increase in the tax rate reduces property prices by on average 3.5%. Effects are stronger for apartments and apartment buildings than for singlefamily houses. We interpret these results in the context of a theoretical model that accounts for the effects of RETT on a property's resale value. If a property is expected to be traded more frequently in the future, the decline in its price can exceed the increase in the tax burden. Moreover, larger price effects can be explained by higher bargaining power of sellers.

Suggested Citation

  • Dolls, Mathias & Fuest, Clemens & Krolage, Carla & Neumeier, Florian, 2020. "Who Bears the Burden of Real Estate Transfer Taxes? Evidence from the German Housing Market," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224525, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc20:224525
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    Cited by:

    1. Carla Krolage, 2020. "The Effect of Real Estate Purchase Subsidies on Property Prices," ifo Working Paper Series 333, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Carla Krolage, 2023. "The effect of real estate purchase subsidies on property prices," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(1), pages 215-246, February.
    3. Salvador Barrios & Cecile Denis & Viginta Ivaskaite-Tamosiune & Adriana Reut & Estefania Vazquez Torres, 2019. "Housing taxation: a new database for Europe," JRC Working Papers on Taxation & Structural Reforms 2019-08, Joint Research Centre.
    4. Geschwind, Stephan & Roesel, Felix, 2022. "Taxation under direct democracy," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 536-554.
    5. Christofzik, Désirée I. & Feld, Lars P. & Yeter, Mustafa, 2020. "Heterogeneous price and quantity effects of the real estate transfer tax in Germany," Freiburg Discussion Papers on Constitutional Economics 20/10, Walter Eucken Institut e.V..
    6. Stefanie Braun, 2021. "Effects of Preferential Tax Treatment on German Homeownership," Working Papers 209, Bavarian Graduate Program in Economics (BGPE).

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    More about this item

    Keywords

    Real estate transfer taxes; property taxes; housing market;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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