Can a Transaction Tax or Capital Gains Tax Smooth House Prices?
41 Pages Posted: 8 Mar 2011 Last revised: 29 May 2013
Date Written: September 19, 2012
Motivated by the search for instruments to contain future housing bubbles, we examine the impact of transaction taxes and capital gains taxes on residential house price growth. We exploit the variation in taxation across Swiss cantons, as well as within-canton changes in taxation over time. We relate these taxes to house price growth observed for 92 regions of the country during the period 1985 – 2009. Our results suggest that higher taxes on capital gains exacerbate house price dynamics while transaction taxes have no impact on house price growth. These findings support the existence of a lock-in effect of capital gains taxes on housing supply and suggest that capital gains taxes on real estate are not suitable measures to prevent excessive house price growth.
Keywords: House prices, Transaction tax, Capital gains tax, Macroprudential policy
JEL Classification: E32, H24, R21
Suggested Citation: Suggested Citation