House Prices and Taxes

Mads Gjedsted Nielsen

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

This paper is the first to consider a large scale natural experiment to estimate the effect of taxes on house prices. We find that a 1 percentage-point increase in income tax rates lead to a drop in house prices of at most 2.2%. This corresponds to a tax capitalization for the average household of only 31%. We use 2007 municipal reform in Denmark in which 256 municipalities changed tax rates, as an exogenous shock to taxes. The exogeneity of the shock to taxes and the size of the data set is an improvement over earlier studies. Our findings significantly downward adjust the degree of tax capitalization from earlier studies. Furthermore, we find no effect of property taxes on house prices. We attribute this to the low levels of Danish municipal property tax rates compared to income tax rates.
Original languageEnglish
Publication date2014
Number of pages22
Publication statusPublished - 2014
EventEuropean Economic Association & Econometric Society 2014 Parallel Meetings - Toulouse, France
Duration: 25 Aug 201429 Aug 2014
http://www.eea-esem.com/EEA-ESEM/2014

Conference

ConferenceEuropean Economic Association & Econometric Society 2014 Parallel Meetings
CountryFrance
CityToulouse
Period25/08/201429/08/2014
Internet address

Cite this

Gjedsted Nielsen, M. (2014). House Prices and Taxes. Paper presented at European Economic Association & Econometric Society 2014 Parallel Meetings, Toulouse, France. http://www.eea-esem.com/EEA-ESEM/2014/m/viewpaper.asp?pid=2632