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The Negative Impact of a Massachusetts Real Estate Transfer Tax on Fiscal Revenue and Household Mobility*

Working paper #850
Gilles Duranton, Lu Han, Matthew A. Turner

Abstract: We estimate the effect of a real estate transfer tax like the one proposed
by the Affordable Homes Act. The proposed tax would raise around 384 million
dollars for Massachusetts municipalities from residential real estate transactions.
However, real estate transfer taxes have two well documented unintended
effects: a ‘lock-in’ effect as people avoid the tax by moving less often, and a
‘pass-through’ effect as transfer taxes reduce property prices. Because of these
pass-through and lock-in effects, the proposed real estate transfer tax reduces the
revenue raised by existing capital gains taxes, the stamp duty, and ordinary
property taxation. This leads to a net decrease in fiscal revenue. The proposed
real estate transfer tax further harms Massachusetts homeowners by
discouraging them from adjusting their housing as their circumstances change.

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