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Labor tax reductions in Europe: The role of property taxation

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  • Bielecki, Marcin
  • Stähler, Nikolai

Abstract

We use a New Keynesian DSGE model with search frictions on the housing market to evaluate how financing a labor tax reduction by higher property taxation affects the real economy and welfare. Search on the housing market enables us to explicitly model stocks and flows, which is necessary to differentiate between recurrent property taxes (levied on stocks) and property transaction taxes (levied to flows). We find that using recurrent property taxation as financing instrument outperforms other instruments although all policy measures increase aggregate economy-wide welfare. Our simulations suggest that using property transaction taxation as financing instrument is the least favorable measure.

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  • Bielecki, Marcin & Stähler, Nikolai, 2018. "Labor tax reductions in Europe: The role of property taxation," Discussion Papers 30/2018, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:302018
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    Cited by:

    1. Stähler, Nikolai, 2019. "Who benefits from using property taxes to finance a labor tax wedge reduction?," Journal of Housing Economics, Elsevier, vol. 46(C).
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    More about this item

    Keywords

    Search Frictions in Housing Markets; Property Taxation; Tax Reform; General Equilibrium;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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