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Reducing Transaction Taxes on Housing in Highly Regulated Economies

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  • Bontemps, Christian
  • Cherbonnier, Frédéric
  • Magnac, Thierry

Abstract

The existence of transaction taxes reduces transactions, and in the case of housing, reduces household mobility and affects the costs of downsizing in dire times. We construct and estimate an overlapping generation model in which households are heterogeneous in age and earnings, and prudential regulation and the tax system are modeled in fine detail. These housing and public policies are likely to affect markets globally, and clearing both rental and property markets is important when evaluating them. We use the institutional and data setting of France, where transactions taxes are some of the highest in Europe, and evaluate the counterfactual impact of reducing transaction taxes from 14% to 6%, similar to US levels. The impact on transactions is strong, but the impact on welfare remains limited.

Suggested Citation

  • Bontemps, Christian & Cherbonnier, Frédéric & Magnac, Thierry, 2024. "Reducing Transaction Taxes on Housing in Highly Regulated Economies," CEPR Discussion Papers 19647, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19647
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    Keywords

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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