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The behavioral response to housing transfer taxes: Evidence from a notched change in D.C. policy

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  • Slemrod, Joel
  • Weber, Caroline
  • Shan, Hui

Abstract

This paper estimates the behavioral response to residential real estate transfer taxes by studying notched tax rate changes in Washington D.C., exploiting both a price and time notch as identifying variation. We provide evidence that there is manipulation of the sales price to the lower-tax-rate region around the price notch, and use this manipulation to show that there was significant awareness of the tax changes and the incentives they created. We then construct difference-in-difference estimates to examine whether there is a lock-in effect in the volume of house sales away from the price and time notches; we find no evidence of a lock-in effect in this setting. Taken together, our results suggest that the welfare costs of a state introducing or eliminating a housing transaction tax are small.

Suggested Citation

  • Slemrod, Joel & Weber, Caroline & Shan, Hui, 2017. "The behavioral response to housing transfer taxes: Evidence from a notched change in D.C. policy," Journal of Urban Economics, Elsevier, vol. 100(C), pages 137-153.
    • Handle: RePEc:eee:juecon:v:100:y:2017:i:c:p:137-153
    DOI: 10.1016/j.jue.2017.05.005
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