The Direct and Spillover Effects of Taxation: Evidence from a Property Tax Break for First-Time Buyers

This paper identifies both the direct and indirect (spillover) effects of a propertytax break made available to first-time buyers. By exempting properties below a defined threshold from transaction taxes, Irish law generated a... [ view full abstract ]

This paper identifies both the direct and indirect (spillover) effects of a propertytax break made available to first-time buyers. By exempting properties below a defined threshold from transaction taxes, Irish law generated a notch that strongly discouraged first-time (‘targeted’) buyers from bidding above that threshold. However, this policy created a spillover effect on non-targeted individuals, by incentivizing them to bid just above that threshold. A theoretical analysis predicts excess mass on both sides of the notch, delineated by tax status. The empirical strategy reveals this double-bunching, highlighting sophisticated bidding strategies by both targeted and non-targeted groups.