Behavioural response to time notches in transaction tax: Evidence from stamp duty in Hong Kong and Singapore

To moderate speculation in housing market, multiple Asian cities implemented transaction tax notches on holding period of property. Using administrative transaction record of property trading, this paper studies the behavioural response in the timing of transaction, tax incidence and selection of buyers using the policy changes in Hong Kong and Singapore. Tax notches on holding period generate significant tax avoidance bunching in the timing of transaction, and properties were less likely to be resold even one year after the tax last applies, suggesting plausible crowd out of transactions. I construct and use a new dataset on government estimated rental rate to estimate the tax incidence and find evidence that buyers bear significant tax burden even when tax-free alternatives are available in the market. Evidence shows that time notches on holding duration produce selection effect among buyers with different ex ante probability of trade in the taxable holding period. Estimates suggest that traders on average are willing to wait for 3-4 weeks to avoid 1% of transaction tax, and each week of delay in transaction would generate loss in the trading surplus at 0.3 % of property value.