Property taxation, bounded rationality and housing prices

Arbeitspapier

In 2008, the Swedish property tax was reformed and a cap on yearly tax liabilities was introduced. A large fraction of owner occupied houses was subject to a substantial decrease in the tax. When the reform was announced, most analysts projected - in line with tax capitalization theory - that the tax decrease would lead to significant increases in house prices. We estimate price responses and capitalization degrees, using various DID strategies, in which the price dynamics of houses that were subject to a generous tax reduction are compared to the price dynamics of houses with a more modest reduction. Our results are largely inconsistent with capitalization theory. For the majority of properties, we find no evidence that the tax cut led to increases in house prices. However, we find evidence of partial capitalization in sub-markets with highly valued properties, highly educated citizens and were it is especially difficult to increase supply. We argue that theories of bounded rationality can help explain why house buyers may fail to take a tax decrease into account in the valuation of houses.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2014:4

Classification and Topics

• Classification: Wirtschaft ; Microeconomic Behavior: Underlying Principles ; Microeconomic Policy: Formulation, Implementation, and Evaluation ; Consumer Economics: Empirical Analysis ; Taxation and Subsidies: Incidence ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand ; Production Analysis and Firm Location: Government Policy
• Subject: announcement effects ; capitalization ; financial literacy ; housing market ; inattention ; saliency

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Elinder, Mikael ; Persson, Lovisa
• Event: Veröffentlichung
• (who): Uppsala University, Department of Economics
• (where): Uppsala
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/123790
• URN: urn:nbn:se:uu:diva-224854
• Last update: 10.03.2025, 11:44 AM CET