Browsing by Author "Silvennoinen, Erkka"

Since 1991, Finland has subsidized homeownership with first-time homebuyer’s stamp duty and transfer tax exemptions. Under certain conditions, buyers with ownership shares of at least 0.5 are exempted from paying a tax of 2% on the free-of-debt price for housing company dwellings and 4% on the free-of-debt price for directly owned houses. The previous empirical literature suggests that transfer taxes may lead to large reductions in housing transactions, household mobility, and housing prices. This thesis studies whether there is evidence of similar effects among first-time homebuyers by focusing on the first-time homebuyer’s transfer tax exemption. The analysis is based on microdata provided by Statistics Finland and Tax Administration on all permanent residents in Finland and housing company shareholdings. Therefore, this study is limited to housing company dwelling transactions, and it does not cover the effects on directly-owned house transactions. The effect on the first-time home purchase decision is studied using a regression discontinuity design among a subgroup that has not lived in owner-occupied dwellings in adulthood except potentially in the household of their parents. The effect on housing prices is studied using a fixed-effects regression model. The findings show that first-time home purchases drop by roughly 30% at the age threshold of 40 years, where buyers become ineligible for the tax exemption. Similarly, covariate-adjusted estimates show that tax-exempted purchases are on average roughly 1% more expensive than purchases without the tax exemption. If the underlying identification assumptions hold, these estimates can be interpreted as the causal effects of the tax exemption. However, there are potential threats to internal validity. The credibility of the assumptions is studied by conducting graphical and formal tests that typically accompany regression discontinuity designs. There is some evidence consistent with the possibility that the assumptions do not hold, but the evidence is also consistent with alternative explanations related to data limitations. Neither possibility can be ruled out definitively.