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Parametric and non-parametric analysis of tax changes

Author

Listed:
  • James Bugden
  • Robert Waschik
  • Iain Fraser
  • Jeffrey S. Racine

Abstract

In this paper, we examine the net effect of several major tax changes in Australia on residential property prices. Specifically, we consider the announcement and introduction effects that resulted from several policy changes including the introduction of the Goods and Services Tax (GST) and the accompanying First Home Owner Grant (FHOG). Using a large dataset of residential property sales in Melbourne, Australia, between 1992 and 2002 we estimate various models using parametric and non-parametric methods. While our parametric models suggest that the tax policy changes appear to have a statistically significant impact on house prices, no economically significant impact is detected by our non-parametric models, nor (upon closer inspection) by the parametric models themselves. Given the enormity of the sample size, this provides a telling example of the fundamental difference between statistical and economic significance and its implications for detecting government policy effectiveness.

Suggested Citation

  • James Bugden & Robert Waschik & Iain Fraser & Jeffrey S. Racine, 2016. "Parametric and non-parametric analysis of tax changes," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 18(5), pages 533-549.
    • Handle: RePEc:ids:gbusec:v:18:y:2016:i:5:p:533-549
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    References listed on IDEAS

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    8. Productivity Commission, 2004. "First Home Ownership," Others 0410007, University Library of Munich, Germany.
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    More about this item

    Keywords

    tax changes; housing; non-parametric analysis; hedonic modelling; parametric analysis; Australia; house prices; residential property prices; tax policy; government policy.;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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