The Impact of Property Tax on Housing Consumption An Empirical Study on the UK, the US and Japan

Abstract

Real estate taxes, as a type of tax instrument, assume the role of providing local revenue and regulating the real estate market in many countries. Out of the stimulating effect of consumption on the economy, scholars studied the impact of real estate taxes on consumption. This paper constructs a model of housing consumption expenditure applying Keynes' absolute income hypothesis. Using data from Japan, the UK and the US Office of National Statistics, an empirical study is conducted through OLS regressions, fixed effects models and random effects models. The results show that real estate taxes are negatively related to residential housing consumption expenditure and that the imposition of real estate taxes significantly reduces residential housing consumption.