Can Property Taxation Fix China’s Housing Market?: A Regression Discontinuity Analysis

Abstract

How does the housing market respond to a newly imposed value-based property tax? Based on individual property transaction data spanning seven years, we investigate the repercussions of a new property tax on the local housing market in Chongqing, China. In particular, we adopt a fuzzy regression discontinuity approach to examine the impact of the tax policy on house prices, transaction volumes, and the broader social welfare. We find that the property tax in Chongqing has not caused a reduction in house prices, but it has made a non-trivial contribution to local public finance for public housing programs. Our findings suggest that the property-tax-capitalization hypothesis is not supported in Chongqing’s context, although the tax improves wealth redistribution.