Transition to the Property Tax in China

We use the dynamic general equilibrium approach to examine the potential impacts of the introduction of alternative tax regimes in China. This approach models housing demand and supply based on the dynamic optimization behaviors of households and firms. By choosing model parameters carefully, the model is able to capture key features in the Chinese real estate market, providing predictions about policy effects. We consider a universal property tax, a selective tax that applies to investment property only, and a land value tax. Regarding the use of tax revenue, we examine two alternatives: 1) a “redistributive” scenario where tax revenue is redistributed in equal amounts to households, and 2) a “non-redistributive” scenario where tax revenue is spent on local public goods but has no impact on housing decisions of households. Quantitatively we examine how different type and usage of tax revenue and expenditure scenarios impact land price, house price, house rent, vacancy rate, and government revenue as well as land concession revenue.