Estimating the Price Elasticity of Demand for Homes in Israel

30/05/2016 |  Ben-Tovim Neelie
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Macroeconomic Policy
Abstract
 
We estimate the price elasticity of demand for homes in Israel, based on bunching of home transactions at the tax kink point
the price where the marginal purchase-tax changes (from 0% to 3.5%). Use is made of a new methodology, developed by Saez (2010), data on all residential purchases in 200814, and information on the purchase tax system.
 
It was found that the price elasticity of demand for homes by sole-dwelling purchasers (non-investors) is -0.046, on average, which is the lower bound of the elasticities calculated in other studies in Israel and abroad, all of which used other methods. Therefore, one may expect a minor behavioral response of sole-dwelling purchasers in Israel to a small change in tax rates.

 

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