Working Paper: CEPR ID: DP15927
Authors: Max Lffler; Sebastian Siegloch
Abstract: We analyze the welfare implications of property taxation. Using a sufficient statistics approach, we show that the tax incidence depends on how housing prices, labor and other types of incomes as well as public services respond to property tax changes. Empirically, we exploit the German institutional setting with 5,200 municipal tax reforms for identification. We find that higher taxes are fully passed on to rental prices after three years. The pass-through is lower when housing supply is inelastic. Combining reduced form estimates with our theoretical framework, we simulate the welfare effects of property taxes and show that they are regressive.
Keywords: Property Taxation; Welfare; Tax Incidence; Local Labor Markets; Rental Housing
JEL Codes: H22; H41; H71; R13; R31; R38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lower housing supply elasticity (R31) | Lower passthrough of property taxes to rental prices (H29) |
| Property taxes are regressive (H29) | Utility losses disproportionately affecting lower-income households (L97) |
| Higher property taxes (H79) | Rental prices (R31) |
| Property tax changes (H29) | Responses of housing prices, labor income, and public services (H31) |