Flip or Flop? Tobin Taxes in the Real Estate Market

88 Pages Posted: 25 Jan 2021 Last revised: 25 Sep 2022

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

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

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

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