How Do Stamp Duties Affect the Housing Market?

29 Pages Posted: 29 Jun 2013

See all articles by Ian Davidoff

Ian Davidoff

International Monetary Fund (IMF)

Andrew Leigh

Australian House of Representatives Parliament House; Centre for Applied Macroeconomic Analysis, ANU; IZA

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Abstract

Land transfer taxes are a substantial portion of the cost of moving house in many developed countries. Since stamp duties are endogenous with respect to the house price, we create an instrumental variable that is the stamp duty on a property, given that postcode's starting house price and the national house price trend. In a specification with postcode and year fixed effects, this instrument effectively captures policy changes and nonlinearities in the stamp duty schedule. We find that the impact of an increase in the tax rate is to lower house prices, suggesting that the economic incidence of the tax falls on the seller. We also observe impacts of stamp duty on housing turnover. A 10 per cent increase in stamp duty lowers turnover by 3 per cent in the first year, and by 6 per cent if sustained over a 3 year period.

Keywords: tax incidence, land sales taxation, residential mobility

JEL Classification: H22, H24, H71, R21, R23, R28

Suggested Citation

Davidoff, Ian and Leigh, Andrew, How Do Stamp Duties Affect the Housing Market?. IZA Discussion Paper No. 7463, Available at SSRN: https://ssrn.com/abstract=2287073

Ian Davidoff (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Andrew Leigh

Australian House of Representatives Parliament House ( email )

Canberra, 2600
Australia

Centre for Applied Macroeconomic Analysis, ANU ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

IZA ( email )

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