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

Charles Ka Yui Leung; Tin Cheuk Leung; Kwok Ping Tsang

doi:10.2139/ssrn.2399733

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

Charles Ka Yui Leung^*, Tin Cheuk Leung, Kwok Ping Tsang

^*Corresponding author for this work

Department of Economics and Finance

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

10 Citations (Scopus)

Abstract

We study the implications of a 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 the cutoff points of the tax schedule or just below them. 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 tax avoidance.

Original language	English
Pages (from-to)	473-501
Journal	International Real Estate Review
Volume	18
Issue number	4
DOIs	https://doi.org/10.2139/ssrn.2399733
Publication status	Published - 1 Dec 2015

Bibliographical note

Publication details (e.g. title, author(s), publication statuses and dates) are captured on an “AS IS” and “AS AVAILABLE” basis at the time of record harvesting from the data source. Suggestions for further amendments or supplementary information can be sent to [email protected].

Research Keywords

Bunching
Change in Nonlinear Tax Schedule
Housing Market
Tax Avoidance and Tax Evasion
Underpricing

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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N2 - We study the implications of a 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 the cutoff points of the tax schedule or just below them. 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 tax avoidance.

AB - We study the implications of a 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 the cutoff points of the tax schedule or just below them. 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 tax avoidance.

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KW - Housing Market

KW - Tax Avoidance and Tax Evasion

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JF - International Real Estate Review

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

Abstract

Bibliographical note

Research Keywords

UN SDGs

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