Abstract
Purpose. Chinese local governments were under pressure to control the high housing prices and explore sustainable revenue to reform land finance.[ China’s land finance system (tu di cai zheng in Chinese), or local governments’ high reliance on urban land-related financing, is a key component of China’s economic life because of its essential role in various aspects of the country’s remarkable urban development (Gyourko et al., 2022).] To solve these problems, the Chinese government levied the first residential property tax through a pilot program in Shanghai and Chongqing in 2011. The purpose of this study was to test whether Shanghai urban residential property tax pilot curbed housing price growth in Shanghai and to proceed with researching empirically on how to measure the price control effect.
Theoretical Framework and Results. Using a novel microlevel data set that included housing sales records between 2011 and 2020, the study was based on property tax capitalization theory. It used a hedonic model to examine whether the urban residential property tax pilot implemented in Shanghai curbed the growth of second-hand residential housing prices.[ Second-hand housing is the commercial residential housing that has had transaction undertake another transaction again in the second market.] The results indicated that differences in the two property tax rates were capitalized into residential property values. The lower tax rate decreased housing prices, but the higher tax rate even increased housing prices because the program had an overeasy tax exemption policy and unreasonable tax rate setting.
Recommendations. This study recommended that future studies could use a number of high-quality schools in the house locating school district to replace public expenditure. School districts’ data might be found at subdistrict or community level.