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How Do Stamp Duties Affect the Housing Market?

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  • Ian Davidoff
  • Andrew Leigh

Abstract

Land transfer taxes are a substantial portion of the cost of moving house in many developed countries. Since stamp duties are endogenous with respect to the house price, we create an instrumental variable that is the stamp duty on a property, given that postcode's starting house price and the national house price trend. In a specification with postcode and year fixed effects, this instrument effectively captures policy changes and nonlinearities in the stamp duty schedule. We find that the impact of an increase in the tax rate is to lower house prices, suggesting that the economic incidence of the tax falls on the seller. We also observe impacts of stamp duty on housing turnover. A 10 per cent increase in stamp duty lowers turnover by 3 per cent in the first year, and by 6 per cent if sustained over a 3 year period.
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Suggested Citation

  • 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, September.
  • Handle: RePEc:bla:ecorec:v:89:y:2013:i:286:p:396-410
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    File URL: http://hdl.handle.net/10.1111/1475-4932.12056
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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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