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Property taxes and home prices: A tale of two cities

Author

Listed:
  • Bai, ChongEn
  • Li, Qi
  • Ouyang, Min

Abstract

We explore the influence of property taxes on home prices, taking advantage of a policy experiment of property taxation in Shanghai and in Chongqing starting from January 2011. Using the approach suggested by Hsiao, Ching and Wan (2012) we estimate hypothetical home prices in the absence of property taxation for Shanghai and Chongqing using home prices in other cities and provinces. We show that the OLS generates consistent estimators when the price series are non-stationary I(1) processes. We apply the model to a panel of average home prices of 31 cities and provinces in China, and find the property-tax experiment lowered the Shanghai average home price by 11%–15% but raised the Chongqing average home prices by 10%–12%. An examination of the policy details and data on prices by home types suggests the post-treatment price increase in Chongqing can be driven by a spillover effect from high-end to low-end properties.

Suggested Citation

  • Bai, ChongEn & Li, Qi & Ouyang, Min, 2014. "Property taxes and home prices: A tale of two cities," Journal of Econometrics, Elsevier, vol. 180(1), pages 1-15.
  • Handle: RePEc:eee:econom:v:180:y:2014:i:1:p:1-15
    DOI: 10.1016/j.jeconom.2013.08.039
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    References listed on IDEAS

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    1. Rosen, Harvey S & Fullerton, David J, 1977. "A Note on Local Tax Rates, Public Benefit Levels, and Property Values," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 433-440, April.
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    5. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 729-752.
    6. Cheng Hsiao & H. Steve Ching & Shui Ki Wan, 2012. "A Panel Data Approach For Program Evaluation: Measuring The Benefits Of Political And Economic Integration Of Hong Kong With Mainland China," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(5), pages 705-740, August.
    7. Oates, Wallace E, 1969. "The Effects of Property Taxes and Local Public Spending on Property Values: An Empirical Study of Tax Capitalization and the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 957-971, Nov./Dec..
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    More about this item

    Keywords

    Property tax; Home price; Treatment effects; Non-stationary data; Spillover effect;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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