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.
Downloads
References
Acosta, J. (2013). Análisis del mercado inmobiliario: ¿Estamos en presencia de una burbuja inmobiliaria? [Real estate market analysis: Are we facing a housing bubble?]. Universidad Andrés Bello. https://repositorio.unab.cl/xmlui/handle/ria/5019
Agnello, L., & Schuknecht, L. (2011). Booms and busts in housing markets: Determinants and implications. Journal of Housing Economics, 20(3), 171–190. https://doi.org/10.1016/j.jhe.2011.04.001
Aspillaga, V. (2016). Análisis del mercado inmobiliario chileno: Efectos del impuesto al valor agregado en la vivienda [Analysis of the Chilean real estate market: Effects of the value added tax on housing]. Universidad de Chile. https://repositorio.uchile.cl/handle/2250/139538
Bai, C., Li, Q., & Ouyang, M. (2014). Property taxes and home prices: A tale of two cities. Journal of Econometrics, 180(1), 1–15. https://doi.org/10.1016/j.jeconom.2013.08.039
Banco Central de Chile. (2014). Índice de precios de vivienda en Chile: Metodología y resultados [House price index in Chile: Methodology and results] (Estudios Económicos Estadísticos N.º 107). Banco Central de Chile. https://www.bcentral.cl/contenido/-/detalle/C38Dndice-de-precios-de-vivienda-en-chile-metodologia-y-resultados-4
Banco Central de Chile. (2018). Informe de estabilidad financiera (segundo semestre) [Financial stability report (second half)]. Banco Central de Chile. https://www.bcentral.cl/contenido/-/detalle/informe-de-estabilidad-financiera-segundo-semestre-2018-4
Benjamin, J. D., Coulson, N. E., & Yang, S. X. (1993). Real estate transfer taxes and property values: The Philadelphia story. The Journal of Real Estate Finance and Economics, 7(2), 151–157. https://doi.org/10.1007/BF01258324
Best, M. C., & Kleven, H. J. (2018). Housing market responses to transaction taxes: Evidence from notches and stimulus in the U.K. The Review of Economic Studies, 85(1), 157–193. https://doi.org/10.1093/restud/rdx032
Biblioteca del Congreso Nacional de Chile. (2014). Reforma tributaria 2014 [2014 tax reform]. Biblioteca del Congreso Nacional de Chile. https://www.bcn.cl/portal/leyfacil/recurso/reforma-tributaria-2014
Bordo, M. D., & Jeanne, O. (2004). Boom-busts in asset prices, economic instability, and monetary policy (Working Paper N.º 8966). National Bureau of Economic Research. https://doi.org/10.3386/w8966
Cámara Chilena de la Construcción. (2022). Informes de actividad del sector inmobiliario [Real estate sector activity reports]. Cámara Chilena de la Construcción. https://cchc.cl/centro-de-informacion/estudios/informes-inmobiliarios
Capozza, D. R., Green, R. K., & Hendershott, P. H. (1998). Tax reform and house prices: Large or small effect? Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association, 91, 19–24. https://www.jstor.org/stable/41954573
Case, K. E., & Shiller, R. J. (1990). Forecasting prices and excess returns in the housing market. Real Estate Economics, 18(3), 253–273. https://doi.org/10.1111/1540-6229.00521
Chaney, T., Sraer, D., & Thesmar, D. (2012). The collateral channel: How real estate shocks affect corporate investment. American Economic Review, 102(6), 2381–2409. https://doi.org/10.1257/aer.102.6.2381
Cornejo, M. (2016). Tributación IVA empresas constructoras e inmobiliarias según reforma tributaria Ley 20.780 y 20.899 [VAT taxation of construction and real estate firms under tax reform Laws 20.780 and 20.899]. Universidad de Concepción. http://repositorio.udec.cl/jspui/handle/11594/3566
Dachis, B., Duranton, G., & Turner, M. A. (2012). The effects of land transfer taxes on real estate markets: Evidence from a natural experiment in Toronto. Journal of Economic Geography, 12(2), 327–354. https://doi.org/10.1093/jeg/lbr007
Elinder, M., & Persson, L. (2017). House price responses to a national property tax reform. Journal of Economic Behavior & Organization, 144, 18–39. https://doi.org/10.1016/j.jebo.2017.09.017
England, R. W., Zhao, M. Q., & Huang, J. C. (2013). Impacts of property taxation on residential real estate development. Journal of Housing Economics, 22(1), 45–53. https://doi.org/10.1016/j.jhe.2012.11.002
Englund, P., Hendershott, P. H., & Turner, B. (1995). The tax reform and the housing market. Swedish Economic Policy Review, 2, 319–356. https://www.government.se/reports/1998/01/swedish-economic-policy-review-volume-2-no.-2-the-swedish-tax-reform-
Figueroa, B., & Lever, G. (1992). Determinantes del precio de la vivienda en Santiago: Una estimación hedónica [Determinants of housing prices in Santiago: A hedonic estimation]. Estudios de Economía, 19(1), 67–84. https://repositorio.uchile.cl/handle/2250/128244
Flores, R., Pérez, J., & Uribe, F. (2018). Valoración de la tierra de uso residencial y su contribución al valor de mercado de la vivienda en Chile [Valuation of residential land and its contribution to the market value of housing in Chile] (Estudios Económicos Estadísticos N.º 126). Banco Central de Chile. https://www.bcentral.cl/contenido/-/detalle/estudio-economico-estadistico-n-126
Gertler, P., Martínez, S., Premand, P., Rawlings, L., & Vermeersch, C. (2016). Impact evaluation in practice (2nd ed.). Inter-American Development Bank; World Bank. http://hdl.handle.net/10986/25030
Gyourko, J., & Krimmel, J. (2021). The impact of local residential land use restrictions on land values across and within single family housing markets. Journal of Urban Economics, 126, 103374. https://doi.org/10.1016/j.jue.2021.103374
Hacievliyagil, N., Drachal, K., & Eksi, I. H. (2022). Predicting house prices using DMA method: Evidence from Turkey. Economies, 10(3), 64. https://doi.org/10.3390/economies10030064
Hurtado, J. (2019). ¿Estamos ante una burbuja inmobiliaria en Santiago? [Are we facing a housing bubble in Santiago?]. ARQ (Santiago), (102), 148–150. https://doi.org/10.4067/S0717-69962019000200148
Idrovo, B., & Lennon, J. (2011). Índice de precios de viviendas nuevas para el Gran Santiago [New housing price index for Greater Santiago] (Documento de Trabajo N.º 65). Cámara Chilena de la Construcción. https://catalogo.extension.cchc.cl/cgi-bin/koha/opac-detail.pl?biblionumber=35846
Idrovo, B., & Lennon, J. (2012). Una aplicación de métodos de detección de burbuja inmobiliaria: Caso Chile [An application of housing bubble detection methods: The case of Chile] (Documento de Trabajo N.º 69). Cámara Chilena de la Construcción. https://catalogo.extension.cchc.cl/cgi-bin/koha/opac-detail.pl?biblionumber=35854
Idrovo, B., Lozano, F. J., & Contreras, J. (2021). Prosperity or real estate bubble? Exuberance probability index of real housing prices in Chile. International Journal of Financial Studies, 9(3), 51. https://doi.org/10.3390/ijfs9030051
Kopczuk, W., & Munroe, D. (2015). Mansion tax: The effect of transfer taxes on the residential real estate market. American Economic Journal: Economic Policy, 7(2), 214–257. https://doi.org/10.1257/pol.20130361
Leamer, E. (2007). Housing is the business cycle (Working Paper N.º 13428). National Bureau of Economic Research. https://www.nber.org/papers/w13428
Li, J., & Florez-Perez, L. (2021). Impact of property tax on housing price: An analysis for real estate development and sustainable renewal. In Proceedings of the 37th Annual ARCOM Conference (pp. 431–438). Association of Researchers in Construction Management. https://discovery.ucl.ac.uk/id/eprint/10137755
Lutz, B. (2015). Quasi-experimental evidence on the connection between property taxes and residential capital investment. American Economic Journal: Economic Policy, 7(1), 300–330. https://doi.org/10.1257/pol.20120017
Mardones, A. (2015). Determinantes del precio de las viviendas: Un análisis econométrico para la Región Metropolitana, Chile [Determinants of housing prices: An econometric analysis for the Metropolitan Region, Chile]. Universidad de Valparaíso. https://repositoriobibliotecas.uv.cl/handle/uvscl/623
Maynou, L., Monfort, M., Morley, B., & Ordóñez, J. (2021). Club convergence in European housing prices: The role of macroeconomic and housing market fundamentals. Economic Modelling, 103, 105595. https://doi.org/10.1016/j.econmod.2021.105595
Mian, A., & Sufi, A. (2011). House prices, home equity-based borrowing, and the US household leverage crisis. American Economic Review, 101(5), 2132–2156. https://doi.org/10.1257/aer.101.5.2132
Mora-Sanguinetti, J. S., & Rubio, M. (2014). Recent reforms in Spanish housing markets: An evaluation using a DSGE model. Economic Modelling, 44, S42–S49. https://doi.org/10.1016/j.econmod.2014.04.028
OECD. (2022). Housing taxation in OECD countries (OECD Tax Policy Studies N.º 29). OECD Publishing. https://doi.org/10.1787/03dfe007-en
Oliviero, T., & Scognamiglio, A. (2019). Property tax and property values: Evidence from the 2012 Italian tax reform. European Economic Review, 118, 227–251. https://doi.org/10.1016/j.euroecorev.2019.05.015
Rahadi, R. A., Wiryono, S. K., Nainggolan, Y. A., Afgani, K., Yaman, R., Azmi, A., Ismail, F., Saputra, J., Rahmawati, D., & Moulynia, A. (2022). Determining the factors influencing residential property price: A comparative study between Indonesia and Malaysia. Decision Science Letters, 11(4), 485–496. https://doi.org/10.5267/j.dsl.2022.6.002
Raya, J. M., & Kucel, A. (2023). How fiscal policy affects housing market dynamics: Evidence from Spain. Bulletin of Economic Research, 75(2), 323–347. https://doi.org/10.1111/boer.12358
Reus, L., González, F., Truffa, S., & Wegmann, C. (2022). Medición de efecto en precios de vivienda por reforma tributaria del 2014 [Measuring the effect of the 2014 tax reform on housing prices] [Tesis de magíster, Universidad Adolfo Ibáñez]. https://remlab.cl/estudios/medicion-de-efecto-en-precios-de-vivienda-por-reforma-tributaria-del-2014/
Sagner, A. (2009). Determinantes del precio de viviendas en Chile [Determinants of housing prices in Chile] (Documento de Trabajo N.º 549). Banco Central de Chile. https://www.bcentral.cl/en/content/-/details/working-papers-n-549
Sagner, A. (2011). Determinantes del precio de viviendas en la Región Metropolitana de Chile [Determinants of housing prices in the Metropolitan Region of Chile]. El Trimestre Económico, 78(312), 813. https://doi.org/10.20430/ete.v78i312.50
Slemrod, J., Weber, C., & Shan, H. (2017). The behavioral response to housing transfer taxes: Evidence from a notched change in D.C. policy. Journal of Urban Economics, 100, 137–153. https://doi.org/10.1016/j.jue.2017.05.005
Vergara, F., & Aguirre, C. (2019). Viviendas a precios demenciales 3: Cómo controlar los precios sin destruir el mercado [Insanely priced housing 3: How to control prices without destroying the market]. CIPER. https://www.ciperchile.cl/2019/08/01/viviendas-a-precios-demenciales-3-como-controlar-los-precios-sin-destruir-el-mercado/
Xiao, C., & Zhou, B. (2023). Property taxes and rental housing: Evidence from China. Real Estate Economics, 51(4), 931–958. https://doi.org/10.1111/1540-6229.12420
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Francisco Javier Lozano, Byron J. Idrovo
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Article usage
- ViewsTimes this article's page was opened since the journal started recording statistics. One person can visit more than once.
- 128
- DownloadsTimes the full text of this article (usually the PDF) was opened or downloaded.
- 307
All time, as recorded by the journal.
Among the top 9% by views · last 2 yearsCompared with all the journal's articles by views in the last 2 years, this one is among the top 9%.
Last 2 years: 128 views, 307 downloads.
2.40 downloads per view (journal average 1.66).Downloads of the full text for every abstract view of this article, compared with the whole journal.
Explore the journal's metrics
