Flip or Flop? Tobin Taxes in the Real Estate Market

Abstract

We estimate the optimal tax on property flips by applying a sufficient statistics approach to a 2011 reform in Taiwan which levied a 10%-15% surcharge on investment properties sold within two years. Linking buyer-seller income tax returns to sales records, we find a 75% drop in one-year flips. We use variation in typhoon severity to classify 20% of pre-reform sales as noisy. Combining these two parameters, the optimal tax rate is 4%, which is close to the transfer tax rates imposed in many global property markets. Segmentation and inventory shifts limit the ability of Tobin taxes to promote housing affordability.