Welfare Effects of Housing Transaction Taxes

A Quantitative Analysis with an Assignment Model

Bibliographic Data

ID9950040
AuthorsNiku Määttänen (0000-0003-4026-648X, University of Helsinki), Marko Terviö (Aalto University School of Business, Finland & Helsinki Graduate School of Economics, Finland, corresponding author)
Year2021
Volume132
Issue644
Pages1566-1599
Publication date2021-10-07
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1093/ej/ueab080
OpenAlexW3204666944
LanguageEN
Citations received1
References cited17

We evaluate the welfare cost of housing transaction taxes with a new assignment model-based framework, where welfare effects are driven by distortions in the matching of houses and households. We calibrate the model with data from the Helsinki metropolitan region to assess the impact of a reform where an ad valorem transaction tax is replaced with a revenue-equivalent property tax. The aggregate welfare gain from this reform increases rapidly with the initial transaction tax rate, with the Laffer curve peaking at about 10%. The proportion of households that lose out from the reform is nevertheless increasing in the tax rate. We compare our model-based counterfactual aggregate welfare results with welfare calculations based on reduced-form estimates from previous policy evaluation studies; they are broadly in line, despite the latter using data from different housing markets at various levels and changes of the tax rate

Ad valorem tax · Counterfactual thinking · Database transaction · Econometrics · Economics · Gross income · Indirect tax · Laffer curve · Market economy · Microeconomics · Monetary economics · Property tax · Public economics · State income tax · Tax rate · Tax reform · Welfare · Financial Literacy, Pension, Retirement Analysis · Fiscal Policy and Economic Growth · Housing Market and Economics

Tools

Open DOIOpen Access