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Welfare Cost of the Real Estate Transfer Tax

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  • Thiess Büttner

Abstract

This paper considers the welfare implications of a tax on real estate transfers. A theoretical analysis shows how the discouragement of mutually beneficial transactions as well as tax-sheltering activities give rise to a welfare loss that can be estimated comprehensively from the empirical elasticity of the tax base. In the absence of tax planning, the elasticity of the tax base is determined by the hazard rate to deter transactions at the margin. With tax planning, the elasticity of the tax base is also driven by the “technology” of tax sheltering. Empirical evidence on the deadweight loss is obtained from the analysis of real estate transfer taxes in Germany. After a constitutional reform has granted the German states the right to set the local rate of the real estate transfer tax, over the last ten years many states have made use of this discretion and have increased the tax rate - some of them repeatedly. Based on the empirical estimate of the revenue effect of these tax increases, the paper shows that the German experience points to a substantial welfare cost of real estate transfer taxation. The preferred estimate suggests that each additional Euro of revenues raised is associated with an increase of the deadweight loss of about 67 cents.

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  • Thiess Büttner, 2017. "Welfare Cost of the Real Estate Transfer Tax," CESifo Working Paper Series 6321, CESifo.
  • Handle: RePEc:ces:ceswps:_6321
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    Cited by:

    1. 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..
    2. Manuela Krause, 2019. "Empirical essays on fiscal federalism and political economy in Germany," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 84.
    3. Fritzsche, Carolin & Vandrei, Lars, 2019. "The German real estate transfer tax: Evidence for single-family home transactions," Regional Science and Urban Economics, Elsevier, vol. 74(C), pages 131-143.
    4. Manuela Krause & Niklas Potrafke, 2020. "The Real Estate Transfer Tax and Government Ideology: Evidence from the German States," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(1), pages 100-120.
    5. Philip Bazel & Jack Mintz & Austin Thompson, 2018. "2017 Tax Competitiveness Report: The Calm Before the Storm," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 11(7), February.
    6. Petkova, Kunka & Weichenrieder, Alfons, 2017. "Price and Quantity Effects of the German Real Estate Transfer Tax," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168305, Verein für Socialpolitik / German Economic Association.
    7. Petkova, Kunka & Weichenrieder, Alfons J., 2019. "Grunderwerbsteuer: Eine Steuer für das 21. Jahrhundert?," SAFE White Paper Series 58, Leibniz Institute for Financial Research SAFE.
    8. Terviö, Marko & Määttänen, Niku, 2017. "Welfare Effects of Housing Transaction Taxes," CEPR Discussion Papers 12551, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    real estate transfer tax; marginal cost of funds; tax rate elasticity of the tax base; tax avoidance;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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