Can a Transaction Tax or Capital Gains Tax Smooth House Prices?

41 Pages Posted: 8 Mar 2011 Last revised: 29 May 2013

See all articles by Nicole Aregger

Nicole Aregger

University of Bern - Department of Economics

Martin Brown

University of St. Gallen

Enzo Rossi

Swiss National Bank

Date Written: September 19, 2012

Abstract

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

Aregger, Nicole and Brown, Martin and Rossi, Enzo, Can a Transaction Tax or Capital Gains Tax Smooth House Prices? (September 19, 2012). Available at SSRN: https://ssrn.com/abstract=1780826 or http://dx.doi.org/10.2139/ssrn.1780826

Nicole Aregger

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Martin Brown (Contact Author)

University of St. Gallen ( email )

Unterer Graben 21
St. Gallen, CH-9000
Switzerland

Enzo Rossi

Swiss National Bank ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

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