Flip or Flop? Tobin Taxes in the Real Estate Market
88 Pages Posted: 25 Jan 2021 Last revised: 25 Sep 2022
Date Written: December 23, 2020
Housing affordability concerns have led policymakers worldwide to consider transfer taxes targeting speculators. We estimate optimal taxes on property flips using a heterogeneous investor model which extends the intuition for imposing financial transaction taxes, or Tobin taxes, to the housing market. Our framework incorporates investors’ housing tenure choice, search costs, and heterogeneity in investment horizon. We calibrate the model using responses to a 2011 Taiwan sales surcharge levied on investment properties flipped within two years. Linking the universe of income tax returns to transaction records, we show the tax generated a 40% drop in second home sales volume. The resulting optimal flip tax is 4%, which is close to the flat transfer tax rates imposed in global real estate markets. Consistent with empirical findings, the model predicts imposing higher sales taxes on second homes increases house price levels but entails large welfare gains for renters on the margin of homeownership.
Keywords: Tobin tax, housing affordability, optimal taxation, noise trading, bunching, macroprudential policy, holding period returns, redistribution
JEL Classification: E61, G11, G12, H22, R31, R38
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