Housing Affordability and Transaction Tax Subsidies

32 Pages Posted: 28 Feb 2021 Last revised: 30 Mar 2021

See all articles by Anastasia Girshina

Anastasia Girshina

Swedish House of Finance

Francois Koulischer

University of Luxembourg

Ulf von Lilienfeld‐Toal

Universite du Luxembourg

Date Written: January 1, 2021

Abstract

House prices have increased faster than average income in many countries over the last decade, raising concerns on the affordability of housing. We study the impact of transaction taxes on the real estate market and the effectiveness of tax subsidies to make housing more affordable. We show how the demand and supply elasticities for housing determine the price impact of tax subsidies and the distribution of gains between buyers and sellers. We then use data on all real estate transactions in Luxembourg from 2007 to 2018 to estimate the elasticity of housing supply and demand. For identification, we exploit discontinuities in the transaction tax schedule as well as rules on tax subsidies for new constructions. Our estimates suggest that the elasticity of house prices to transaction taxes is 0.27, so buyers capture a large part of the surplus from the subsidies.

Keywords: Real Estate, Transactions Taxes, Housing Subsidies, Housing Affordability

JEL Classification: G51, H71, R21, R31

Suggested Citation

Girshina, Anastasia and Koulischer, Francois and von Lilienfeld‐Toal, Ulf, Housing Affordability and Transaction Tax Subsidies (January 1, 2021). Swedish House of Finance Research Paper No. 21-08, Available at SSRN: https://ssrn.com/abstract=3758466 or http://dx.doi.org/10.2139/ssrn.3758466

Anastasia Girshina

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Francois Koulischer (Contact Author)

University of Luxembourg ( email )

Kirchberg, 6, rue Richard Coudenhove-Kalergi
Luxembourg
Luxembourg

Ulf Von Lilienfeld‐Toal

Universite du Luxembourg

L-1511 Luxembourg
Luxembourg

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