Keeping Investors at Bay: The Impact of Uniform and Preferential Transaction Tax Reductions

Abstract

This paper studies how transaction tax reductions affect housing market outcomes, distinguishing between uniform reductions that benefit all buyers and preferential reductions targeted at owner-occupiers. We exploit two reforms implemented in 2018 in Belgium's two largest regions, which introduced a uniform cut for all houses in Wallonia and a preferential cut for about half of the housing stock in Flanders. Using administrative data covering all single-family houses and a difference-indifferences strategy, we document three main findings. First, uniform cuts generate large and symmetric responses in sales and prices relative to past evidence on tax hikes. Second, preferential reductions have much weaker effects on sales and prices, but stronger effects on rents and buy-to-rent activity. Third, the two policies reshape tenure dynamics differently: uniform cuts expand the rental stock, whereas preferential cuts reduce it by stimulating transitions into owner-occupation. The results highlight important efficiency and distributional trade-offs in the design of transaction tax reforms.