Transaction-tax Evasion in the Housing Market

• Authors: Amedeo Piolatto and José García-Montalvo.
• BSE Working Paper: 110553 | March 19
• Keywords: mortgage , Tax evasion , transfer tax , housing market , appraisal , Loan-To-Value , tax-morale JEL classiffication
• JEL codes: G21, H26, R21
• mortgage
• Tax evasion
• transfer tax
• housing market
• appraisal
• Loan-To-Value
• tax-morale JEL classiffication

We model the behaviour of a mortgagor considering to evade the real estate transfer tax. We build an observable measure of over-appraisal that is inversely related with tax evasion and conclude that the tax authority could focus auditing efforts on low-appraisal transactions. We include `behavioural’ components (shame and stigma) allowing to introduce buyers’ and societal characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database for Spain, where we directly observe: real payment, value declared to the authority, appraisal, buyers’ educational level and local levels of corruption and trust.