Journal of Public Economics
Capital gains taxation and residential mobility in Sweden
Scientific Article in English
Theoretical studies have shown that capital gains taxes in the housing market may create lock-in effects, but, so far, no empirical evidence has been presented regarding the size of these effects. For a panel of Swedish house owners in 1984–1990, we show that lock-in effects only appear for households with income reductions; the size of these lock-in effects crucially depends on the magnitude of the income loss. The theoretical model and features of the Swedish tax system imply that lock-in effects depend on the degree of mismatch in the current residence and whether the households buy up or buy down.