Property tax incidence and housing market in Taiwan

This research consolidates three views of property tax incidence into a dynamic stochastic general equilibrium (DSGE) model and analyzes the effects of property tax shocks on housing markets. We show that the elasticity of substitution between residential housing (owner-occupied) and investment housing (non-owner-occupied) plays an important role for the incidence of the property tax. When applying the model to Taiwan’s housing tax reform, the results indicate that the implementation of a hoarding tax on investment housing fails to curb the investment housing price; the tax effect is passed on to the residential housing price when investment housing and residential housing are considered as complements. A tax on residential housing can effectively moderate residential housing consumption and residential housing prices.