Substitution Between Rent and Tax, Revenue and Real Estate Policy
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| Title | Substitution Between Rent and Tax, Revenue and Real Estate Policy
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| Author | Huang Shao-an and Chen Binkai |
| Organization | Shandong University；The Central University Of Finance and Economics |
| Email | shaoanhuang@edu.sdu.cn；chenbenkai@gmail.com |
| Key Words | Rent-Tax Substitution; Fiscal revenue; Housing Price; Real Estate Development |
| Abstract | This paper studies the relationship between real estate development and government fiscal revenue both theoretically and empirically. The theoretical model shows that the government's total revenue is determined by the amount of land in long run, while financing through land rents or corporate tax does not matter. In the short run, the Rent-Tax substitution mechanism characterizes the relationship of government revenue from land rents and corporate tax; the higher the land rent is, the lower the corporate tax will be. Based on 1998-2008 industrial enterprises survey data, this paper test the "Rent-Tax Substitution" mechanism empirically. The results reveal that housing prices will result in a decline of corporate tax (Value added tax, income tax and business tax) and corporate profits, which strongly supports the Rent-Tax substitution hypothesis. We further examines the motivation of local government's enthusiasm in real estate development. We find that the fiscal system, government performance evaluation system and short-term behavior of government officials are the most important underlying reasons. |
| Serial Number | WP276 |
| Time | 2012-06-12 |
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