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Tax-driven Bunching of Housing Market Transactions: The case of Hong Kong

  • Leung, Charles Ka Yui
  • Leung, Tommy Tin Cheuk
  • Tsang, Byron Kwok Ping

We study the implications of property market transaction tax. As property buyers are obligated to pay a transaction tax (“stamp duty”, or SD) where the rate increases with the value of the transaction, there are incentives to trade at or just below the cutoff points of the tax schedule. Thus, both “bunching in transactions” and “underpricing” should be observed near those cutoffs. Furthermore, the bunching points should change with the tax schedule. We confirm these conjectures with a rich dataset from the Hong Kong housing market and provide a measure of the tax avoidance.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53729.

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Date of creation: Feb 2014
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Handle: RePEc:pra:mprapa:53729
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  1. Leung, Charles Ka Yui & CHEUNG, W. Y. Patrick & TANG, C. H. Edward, 2011. "Financial Crisis and the Comovements of Housing Sub-markets: Do relationships change after a crisis?," MPRA Paper 31627, University Library of Munich, Germany.
  2. Wojciech Kopczuk & David Munroe, 2015. "Mansion Tax: The Effect of Transfer Taxes on the Residential Real Estate Market," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 214-57, May.
  3. Emmanuel Saez, 1999. "Do Taxpayers Bunch at Kink Points?," NBER Working Papers 7366, National Bureau of Economic Research, Inc.
  4. David Card & Richard Blundell & Richard B. Freeman, 2004. "Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000," NBER Books, National Bureau of Economic Research, Inc, number card04-1.
  5. Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2009. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," NBER Working Papers 15617, National Bureau of Economic Research, Inc.
  6. Leora Friedberg, 1999. "The Labor Supply Effects of the Social Security Earnings Test," NBER Working Papers 7200, National Bureau of Economic Research, Inc.
  7. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  8. Koichiro Ito, 2012. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," NBER Working Papers 18533, National Bureau of Economic Research, Inc.
  9. Leung, Tin Cheuk & Tsang, Kwok Ping, 2013. "Anchoring and loss aversion in the housing market: Implications on price dynamics," China Economic Review, Elsevier, vol. 24(C), pages 42-54.
  10. Teemu Lyytikäinen & Hilber & A. L. Christian, 2013. "Housing transfer taxes and household mobility: Distortion on the housing or labour market?," Working Papers 47, Government Institute for Economic Research Finland (VATT).
  11. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, Oxford University Press, vol. 128(2), pages 669-723.
  12. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, 05.
  13. Tin Cheuk Leung & Kwok Ping Tsang, 2013. "Can Anchoring and Loss Aversion Explain the Predictability of Housing Prices?," Pacific Economic Review, Wiley Blackwell, vol. 18(1), pages 41-59, 02.
  14. David Card & Richard Blundell & Richard B. Freeman, 2004. "Introduction to "Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000"," NBER Chapters, in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 1-8 National Bureau of Economic Research, Inc.
  15. LEUNG, K. Y. Charles & TANG, C. H. Edward, 2011. "Comparing two financial crises: the case of Hong Kong real estate markets," MPRA Paper 31562, University Library of Munich, Germany.
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