Can a Transaction Tax or Capital Gains Tax Smooth House Prices? | Zendy

Nicole Aregger | Zendy; Martin Brown | Zendy; Enzo Rossi | Zendy

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Can a Transaction Tax or Capital Gains Tax Smooth House Prices?

Author(s) -

Nicole Aregger,

Martin Brown,

Enzo Rossi

Publication year - 2011

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.1780826

Subject(s) - monetary economics , database transaction , economics , ad valorem tax , capital gains tax , tax credit , business , tax reform , microeconomics , public economics , computer science , database

Motivated by the search for instruments to contain future housing bubbles, we examine the impact of transaction taxes and capital gains taxes on residential house price growth. We exploit the variation in taxation across Swiss cantons, as well as within-canton changes in taxation over time. We relate these taxes to house price growth observed for 92 regions of the country during the period 1985 – 2009. Our results suggest that higher taxes on capital gains exacerbate house price dynamics while transaction taxes have no impact on house price growth. These findings support the existence of a lock-in effect of capital gains taxes on housing supply and suggest that capital gains taxes on real estate are not suitable measures to prevent excessive house price growth.

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