Transaction-tax evasion in the housing market

Abstract

We model the behaviour of a buyer trying to evade the real estate transfer tax. We identify over-appraisal as a key, easily-observable element that is inversely related with tax evasion. We conclude that the tax authority could focus auditing efforts on low appraisal transactions. We include ‘behavioural’ components (shame and stigma) allowing to introduce buyers' (education) and societal (social capital) characteristics that explain individual and idiosyncratic variations. Our empirical analysis confirms the predictions using a unique database, where we directly observe: real payment, value declared to the authority, appraisal, buyers' educational level and local levels of corruption and trust.