Effects of Housing Transfer Taxes on Household Mobility

43 Pages Posted: 26 Jul 2019

See all articles by Essi Eerola

Essi Eerola

Bank of Finland - Monetary Policy and Research Department; VATT Institute for Economic Research

Oskari Harjunen

Urban Research and Statistics, City of Helsinki

Teemu Lyytikäinen

Government of the Republic of Finland - VATT Institute for Economic Research; Spatial Economics Research Centre (SERC)

Tuukka Saarimaa

Aalto University - School of Business; Aalto University - School of Engineering

Date Written: 2019

Abstract

Housing transfer taxes are fiscally important in many countries despite evidence of substantial welfare losses found in several quasi-experimental studies. Research designs used in this prior literature are prone to attenuation bias due to spillovers from mobility or trading across control and treatment groups. We account for these spillovers by combining quasi-experimental empirical analysis with a one-sided housing market model where households act as both buyers and sellers. Using a Finnish tax reform and total population register data, we find that an increase in the transfer tax has a significant negative effect on household mobility. We calibrate our theoretical model to match the mobility rates in our data and our quasi-experimental estimate. In our setting, relying only on the quasi-experiment and ignoring the spillovers would lead to a 20% underestimation of the effect. We argue that the welfare costs of transfer taxes are larger than previously thought.

Keywords: household mobility, spillover, transfer tax, welfare cost

JEL Classification: H210, R210, R230

Suggested Citation

Eerola, Essi and Harjunen, Oskari and Lyytikäinen, Teemu and Saarimaa, Tuukka, Effects of Housing Transfer Taxes on Household Mobility (2019). CESifo Working Paper No. 7750. Available at SSRN: https://ssrn.com/abstract=3426938

Essi Eerola (Contact Author)

Bank of Finland - Monetary Policy and Research Department ( email )

PO Box 160
00101 Helsinki
Finland

VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Oskari Harjunen

Urban Research and Statistics, City of Helsinki ( email )

Helsinki
Finland

Teemu Lyytikäinen

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Spatial Economics Research Centre (SERC) ( email )

United Kingdom

Tuukka Saarimaa

Aalto University - School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

Aalto University - School of Engineering ( email )

PO BOX 14100
Aalto 00076
Finland

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