Flip or Flop? Tobin Taxes in the Real Estate Market

118 Pages Posted: 25 Jan 2021 Last revised: 29 Nov 2021

See all articles by Chun-Che Chi

Chun-Che Chi

Institute of Economics, Academia Sinica

Cameron LaPoint

Yale School of Management

Ming-Jen Lin

National Taiwan University - Department of Economics

Date Written: December 23, 2020

Abstract

Concerns about housing affordability have led policymakers worldwide to call for property transfer taxes targeting speculators. We estimate the optimal tax on property flips using a sufficient statistics approach which extends the intuition for imposing financial transaction taxes, or Tobin taxes, to the housing market context. The framework incorporates investors’ housing tenure choice and search costs. We apply our approach to a 2011 reform in Taiwan which levied a sales surcharge of up to 15% on investment properties held for two years or less. Linking the universe of personal income tax returns to transaction records, we show via an hedonic bunching design that the tax generated a 75% drop in one-year flips and a 40% drop in overall second home sales volume. We use spatial and time variation in the severity of tropical storm seasons to estimate a 20% share of noise trading prior to the reform. Combining these two sufficient statistics, the optimal transfer tax on flips is 4%, at most, which is close to the flat transfer tax rates imposed in many global real estate markets. Segmentation and lock-in effects limit the ability of Tobin taxes to improve housing affordability.

Keywords: Tobin tax, housing affordability, sufficient statistics, noise trading, bunching, lock-in effects, holding period returns, weather shocks

JEL Classification: G11, G12, H22, R31, R38

Suggested Citation

Chi, Chun-Che and LaPoint, Cameron and Lin, Ming-Jen, Flip or Flop? Tobin Taxes in the Real Estate Market (December 23, 2020). Available at SSRN: https://ssrn.com/abstract=3761226 or http://dx.doi.org/10.2139/ssrn.3761226

Chun-Che Chi

Institute of Economics, Academia Sinica ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

Cameron LaPoint (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States

HOME PAGE: http://som.yale.edu/faculty/cameron-lapoint

Ming-Jen Lin

National Taiwan University - Department of Economics ( email )

21 Hsiu Chow Rd
Taipei, 10020
Taiwan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
108
Abstract Views
994
rank
343,987
PlumX Metrics