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An overview of the taxation of residential property: is it a good idea?

Author

Listed:
  • Marta Rodriguez-Vives

    (Principal Economist at Fiscal Policies Division, European Central Bank, Frankfurt am Main, Germany)

  • Miguel Angel Gavilan-Rubio

    (Researcher at Analysis and Research Division, Bank of Slovenia, Ljubljana, Slovenia)

Abstract

This article examines the taxation of property in the residential market as a potential revenue-raising tool in public finance. Economists generally consider taxing property to be less distortionary than taxing other tax bases. It ranks well in terms of trade-offs across long-term growth and inequality considerations. Although countries have different societal preferences, recourse to property taxation is not generally widespread. Using panel data methods and stochastic frontier analysis, we provide evidence that government revenue from property taxation is relatively inelastic to house price and quantity developments, and that countries with a higher implicit tax rate tend to be more efficient at collecting the revenue. Despite the increase of prices since 2014, low revenues can be the result of low effective tax rates and outdated house valuation systems.

Suggested Citation

  • Marta Rodriguez-Vives & Miguel Angel Gavilan-Rubio, 2021. "An overview of the taxation of residential property: is it a good idea?," Public Sector Economics, Institute of Public Finance, vol. 45(2), pages 283-303.
    • Handle: RePEc:ipf:psejou:v:45:y:2021:i:2:p:283-303
    DOI: 10.3326/pse.45.2.5
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    property tax; households; housing policies; housing prices; wealth inequality;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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