Taxing Vacant Dwellings: Can fiscal policy reduce vacancy?

We provide the first evaluation of a tax on vacant housing. This instrument has been used increasingly by governments in order to reduce vacancy in large and dense cities with tight housing markets. We use the quasi-experimental setting of the implementation of a tax on vacancy in France in 1999 to identify the causal direct effect of the tax on the vacancy rate. Exploiting an exhaustive fiscal data-set, which contains information on every dwelling in France from 1995 to 2013, we implement a Difference-in-Difference approach combined with a Propensity Score Matching strategy. Our results suggest that the tax was responsible of a 13% decrease in vacancy rates between 1997 and 2001. This impact is twice as high for municipalities with an initially high level of vacancy. Our results also suggest that most of the vacant dwellings moved to primary residences.