Property transfer taxes, residential mobility, and welfare

Abstract

I develop a life-cycle model with housing in order to analyze the effects of property transfer taxes on homeownership, residential mobility and welfare in the Netherlands. To allow for repeat home buyers that do not adjust the house size, I introduce shocks to the suitability of a house for its owner and demonstrate how such shocks can be calibrated using the empirical distribution of house size adjustments. Even though the life-cycle model can match the negative impact of transfer taxes on mobility well, I find that a revenue-neutral abolition of transfer taxes decreases welfare slightly due to the associated increase in house prices and rents. Moreover, I show that an exemption of young first-time home buyers from the property transfer tax is not an effective way of increasing the homeownership rate.