Tax-driven Bunching of Housing Market Transactions: The case of Hong Kong

Leung, Charles Ka Yui and Leung, Tommy Tin Cheuk and Tsang, Byron Kwok Ping (2014): Tax-driven Bunching of Housing Market Transactions: The case of Hong Kong.

Abstract

We study the implications of property market transaction tax. As property buyers are obligated to pay a transaction tax (“stamp duty”, or SD) where the rate increases with the value of the transaction, there are incentives to trade at or just below the cutoff points of the tax schedule. Thus, both “bunching in transactions” and “underpricing” should be observed near those cutoffs. Furthermore, the bunching points should change with the tax schedule. We confirm these conjectures with a rich dataset from the Hong Kong housing market and provide a measure of the tax avoidance.

• Item Type: MPRA Paper
• Language: English
• Keywords: bunching, change in nonlinear tax schedule, housing market, tax avoidance and tax evasion, underpricing
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand

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