Regulatory Shocks to Housing Market: How Much of the Chilean VAT on Housing Sales Is Transferred to Prices?
DOI:
https://doi.org/10.4067/S0718-88702024000200035Keywords:
Real estate, housing, taxation, VAT, difference-in-differencesAbstract
This study shows that the 2014 tax reform in Chile (Law No. 20.780) caused a significant increase in housing sales prices. We exploit the way tax regulation was applied in Chile to generate an analysis framework based on a natural experiment. By applying difference-in-difference estimation technique, we found that the implementation of VAT on housing sales since 2016 caused an additional increase in prices between 9,6% and 12,6%. In addition, we detect heterogeneity in the transfer of VAT to prices, according to house values and location. Finally, we found two events that caused a rise in housing prices: the announcement of the tax reform in 2014 and the implementation of the Law in 2016.
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