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Housing transfer taxes and household mobility: Distortion on the housing or labour market?

Listed author(s):
  • Teemu Lyytikäinen
  • Hilber
  • A. L. Christian

We estimate the effect of the UK Stamp Duty Land Tax on household mobility using micro data. Exploiting a discontinuity in the tax schedule as a quasiexperimental setting, we isolate the impact of the stamp duty from other determinants of mobility. We compare homeowners with self-assessed house values on either sides of a cut-off value where the tax rate increases from 1 to 3 percent and find that a higher stamp duty strongly negatively affects their propensity to move. The 2 percentage-point increase in the stamp duty reduces the annual rate of mobility by between 2 and 3 percentage-points or about 30 percent. This adverse effect is confined to short-distance and non-job related moves, suggesting a distortion in the housing rather than the labour market. As a cross-validation check, we also analyse the distribution of actual transaction prices and find that the tax rate increase reduces the volume of sales by roughly 30 percent.

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Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 47.

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Date of creation: 09 Aug 2013
Handle: RePEc:fer:wpaper:47
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