IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v79y2025i2d10.1007_s00199-024-01592-7.html
   My bibliography  Save this article

Second-home tax and tax avoidance in the housing market

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00199-024-01592-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00199-024-01592-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2009. "The Optimal Income Taxation of Couples," Econometrica, Econometric Society, vol. 77(2), pages 537-560, March.
    2. James Alm & Weizheng Lai & Xun Li, 2022. "Housing market regulations and strategic divorce propensity in China," Journal of Population Economics, Springer;European Society for Population Economics, vol. 35(3), pages 1103-1131, July.
    3. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "The efficiency of indirect taxes under imperfect competition," Journal of Public Economics, Elsevier, vol. 81(2), pages 231-251, August.
    4. Hyunho Kim & Konstantinos Serfes, 2006. "A Location Model With Preference For Variety," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 569-595, December.
    5. Agarwal, Sumit & Li, Keyang & Qin, Yu & Wu, Jing & Yan, Jubo, 2020. "Tax evasion, capital gains taxes, and the housing market," Journal of Public Economics, Elsevier, vol. 188(C).
    6. Kopczuk, Wojciech, 2001. "Redistribution when avoidance behavior is heterogeneous," Journal of Public Economics, Elsevier, vol. 81(1), pages 51-71, July.
    7. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    8. Harberger, Arnold C, 1978. "On the Use of Distributional Weights in Social Cost-Benefit Analysis," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 87-120, April.
    9. Hunt Allcott & Benjamin B Lockwood & Dmitry Taubinsky, 2019. "Regressive Sin Taxes, with an Application to the Optimal Soda Tax," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(3), pages 1557-1626.
    10. Alexey Kushnir & Robertas Zubrickas, 2024. "Optimal labor income taxation with the dividend effect," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1169-1201, December.
    11. Gelardi, Alexander M.G., 1996. "The Influence of Tax Law Changes on the Timing of Marriages: A Two-Country Analysis," National Tax Journal, National Tax Association, vol. 49(1), pages 17-30, March.
    12. James Alm & Stacy Dickert-Conlin & Leslie A. Whittington, 1999. "Policy Watch: The Marriage Penalty," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 193-204, Summer.
    13. Cremer, Helmuth & Lozachmeur, Jean-Marie & Maldonado, Dario & Roeder, Kerstin, 2016. "Household bargaining and the design of couples’ income taxation," European Economic Review, Elsevier, vol. 89(C), pages 454-470.
    14. Alm, James & Whittington, Leslie A., 1997. "Income taxes and the timing of marital decisions," Journal of Public Economics, Elsevier, vol. 64(2), pages 219-240, May.
    15. Rabah Amir & Isabel Grilo, 2003. "On strategic complementarity conditions in Bertrand oligopoly," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(1), pages 227-232, August.
    16. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    17. Martin Farnham & Lucie Schmidt & Purvi Sevak, 2011. "House Prices and Marital Stability," American Economic Review, American Economic Association, vol. 101(3), pages 615-619, May.
    18. Edoardo Di Porto & Enrica Maria Martino & Henry Ohlsson, 2021. "Avoiding taxes by transfers within the family," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 1-23, February.
    19. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421, Elsevier.
    20. Thomas D. Jeitschko & Yeonjei Jung & Jaesoo Kim, 2017. "Bundling and joint marketing by rival firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 571-589, September.
    21. Xiaokuai Shao, 2020. "Diversity and Quantity Choice in a Horizontally Differentiated Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 689-708, December.
    22. Alexander Frankel, 2014. "Taxation of Couples under Assortative Mating," American Economic Journal: Economic Policy, American Economic Association, vol. 6(3), pages 155-177, August.
    23. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-58, December.
    24. Häckner, Jonas & Herzing, Mathias, 2016. "Welfare effects of taxation in oligopolistic markets," Journal of Economic Theory, Elsevier, vol. 163(C), pages 141-166.
    25. Alexander Tarasov & Robertas Zubrickas, 2023. "Optimal income taxation under monopolistic competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 495-523, August.
    26. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(4), pages 547-558, December.
    27. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation base in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 625-646, April.
    28. Davidson, Carl & Martin, Lawrence & Wilson, John Douglas, 2007. "Efficient black markets?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1575-1590, August.
    29. Stern, Nicholas, 1987. "The effects of taxation, price control and government contracts in oligopoly and monopolistic competition," Journal of Public Economics, Elsevier, vol. 32(2), pages 133-158, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Louis Kaplow, 2024. "Optimal Income Taxation," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 637-738, June.
    2. Kei Sakata & Colin. R. McKenzie, 2010. "Does Taxation Affect Marriage and Family Planning Decisions?," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-003, Keio/Kyoto Joint Global COE Program.
    3. Ellalee, Haider & Alali, Walid Y., 2022. "A Welfare and Pass-Through Effects of Regulations within Imperfect Competition," MPRA Paper 116512, University Library of Munich, Germany.
    4. Michael Baker & Emily Hanna & Jasmin Kantarevic, 2004. "The Married Widow: Marriage Penalties Matter!," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 634-664, June.
    5. Adachi, Takanori & Fabinger, Michal, 2022. "Pass-through, welfare, and incidence under imperfect competition," Journal of Public Economics, Elsevier, vol. 211(C).
    6. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    7. Alm, James & Whittington, Leslie A., 1997. "Income taxes and the timing of marital decisions," Journal of Public Economics, Elsevier, vol. 64(2), pages 219-240, May.
    8. Leturcq, Marion, 2012. "Will you civil union me? Taxation and civil unions in France," Journal of Public Economics, Elsevier, vol. 96(5), pages 541-552.
    9. Leturcq, Marion, 2012. "Will you civil union me? Taxation and civil unions in France," Journal of Public Economics, Elsevier, vol. 96(5), pages 541-552.
    10. Hayley Fisher & Anna Zhu, 2019. "The Effect of Changing Financial Incentives on Repartnering," The Economic Journal, Royal Economic Society, vol. 129(623), pages 2833-2866.
    11. Fink, Alexander, 2016. "Income taxation and the timing of marriage," VfS Annual Conference 2016 (Augsburg): Demographic Change 145827, Verein für Socialpolitik / German Economic Association.
    12. Takuya Obara & Yoshitomo Ogawa, 2025. "Optimal Nonlinear Income Taxation for Non-Cooperative Couples," Discussion Paper Series 291, School of Economics, Kwansei Gakuin University, revised Jun 2025.
    13. Anna D'Annunzio & Mohammed Mardan & Antonio Russo, 2020. "Multi‐part tariffs and differentiated commodity taxation," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 786-804, September.
    14. Martin Peitz & Markus Reisinger, 2014. "Indirect Taxation in Vertical Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 62(4), pages 709-755, December.
    15. Alexandrov, Alexei & Bedre-Defolie, Özlem, 2017. "LeChatelier–Samuelson principle in games and pass-through of shocks," Journal of Economic Theory, Elsevier, vol. 168(C), pages 44-54.
    16. Doligalski, Paweł & Rojas, Luis E., 2023. "Optimal redistribution with a shadow economy," Theoretical Economics, Econometric Society, vol. 18(2), May.
    17. Takuya Obara & Yoshitomo Ogawa, 2020. "Optimal Taxation in an Endogenous Fertility Model with Non-Cooperative Couples," Discussion Paper Series 211, School of Economics, Kwansei Gakuin University, revised Jan 2021.
    18. Takuya Obara & Yoshitomo Ogawa, 2024. "Optimal taxation in an endogenous fertility model with non-cooperative behavior," Review of Economics of the Household, Springer, vol. 22(1), pages 173-197, March.
    19. Alan G. Futerman & Luciano Villegas, 2022. "An Austrian critique of the neoclassical approach to indirect taxes," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(4), pages 517-529, December.
    20. D’Annunzio, Anna & Russo, Antonio, 2024. "Platform Transaction Fees and Freemium Pricing," TSE Working Papers 24-1569, Toulouse School of Economics (TSE).

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:79:y:2025:i:2:d:10.1007_s00199-024-01592-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.