Flip or Flop? Tobin Taxes in the Real Estate Market

90 Pages Posted: 25 Jan 2021 Last revised: 6 Feb 2025

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

Macroprudential and housing affordability concerns have led governments to consider transfer taxes targeting investors in an effort to bring down house prices. We introduce a heterogeneous investor model with rental rate and pricing risk to study how policymakers should set tax rates to deter speculative housing transactions. We calibrate the model using the universe of personal income tax returns and bunching responses around notches in a sales tax schedule imposed on investment properties in Taiwan. Applying sufficient statistics formulas or recasting the problem as a price-rent ratio targeting exercise results in a tax on property flips of between 4% and 5% — close to the flat transfer tax rates imposed in many global real estate markets. Levying higher sales taxes on second homes increases price levels and leads to large overall welfare losses, but improves welfare for renters on the margin of homeownership. 

Keywords: Tobin tax, price-rent ratio, macroprudential policy, housing investment, noise trading, optimal corrective taxation

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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