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Second-home tax and tax avoidance in the housing market

Author

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  • Xiaokuai Shao

    (Beijing Foreign Studies University)

  • Ming Gao

    (Liaoning University)

Abstract

In many countries, households must pay additional taxes for their second homes, leading to voluntary marriage distortions for tax avoidance, through divorce or delaying marriage. We develop a novel theoretical framework to show (i) such marriage distortions lead to lower effective taxes, which increase the marginal households’ willingness-to-pay for a second house, and housing suppliers respond by raising price; (ii) higher equilibrium prices reduce aggregate consumer surplus, even though tax-avoiding marriage distortions are voluntary choices of households; (iii) simulations show such tax avoidance tends to reduce (resp. increase) social surplus at relatively low (resp. high) levels of tax.

Suggested Citation

  • Xiaokuai Shao & Ming Gao, 2025. "Second-home tax and tax avoidance in the housing market," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 79(2), pages 561-601, March.
    • Handle: RePEc:spr:joecth:v:79:y:2025:i:2:d:10.1007_s00199-024-01592-7
    DOI: 10.1007/s00199-024-01592-7
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    More about this item

    Keywords

    Housing price; Second-home tax; Tax avoidance; Marriage distortion; Multi-purchase;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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