Abstract
This paper investigates the welfare implications of two housing-related tax policies in China, the property tax and the implicit residential land tax. We use a general equilibrium model with distorted land markets and households differing in home ownerships, asset holdings, and incomes. We find that the implicit residential land tax causes a larger social welfare loss than the property tax. The social welfare loss is due to the exacerbation of land misallocations and more significantly the rising of rents that disproportionally hurts the poor renters. Our findings thus imply that the currently imposed implicit residential land tax in China should be replaced by the conventional property tax.
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