Abstract
The objective of this study is to investigate whether changes in acquisition tax rates and transfer income tax rates have affected property prices in Korea. In addition, we have tested the hypotheses on investors’ psychology and reactions by applying a Matheson’s Model(2011) which has focused on the impact of transaction taxes on stock prices. Considering the difference between the stock market and real estate market, we have modified Matheson’s Model in order to analyze the data collected from the Korean real estate register system. The results show that the acquisition tax rate hikes have resulted in lower DACT(decease of property price due to change in trade tax) values; this means that the winning investors have increased their holding periods of property long enough to offset the impact of the higher tax rates. In contrast, acquisition tax rate cuts have generated the certainty impact on both winning and losing investors and have led them show irrational investment behavior according to the value curve of prospect theory in Kahnenman and Tversky(1979). As for the transfer income tax rate hikes and cuts, winning investors have reacted more strongly to tax rate cuts than to tax rate hikes, shortening their holding periods and thus raising the DACT values.
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