Stamping out Stamp Duty: Property or Consumption Taxes?

Abstract

Property transaction taxes - also known as stamp duty - are widely viewed as an inefficient form of taxation. In this paper, we examine the welfare implications of removing stamp duty in a general equilibrium overlapping generation model with heterogeneous agents. Our model features an idiosyncratic shock to housing preferences which may create mismatch or induce household to move. When examining steady states we find that newborn households prefer entering an economy with a recurring property tax rather than one with stamp duty. In contrast, when examining transition dynamics we find that existing households prefer replacing stamp duty with a consumption tax.

Keywords: Property transaction taxes, OLG model, Heterogeneous agents, Welfare

JEL Classification: E21, H24, R13, R2