Real Estate Tax Reform, Economic Growth and Financial Stability

Abstract By constructing a multi-sector DSGE model embedded with tax wedge, housing mortgage financing constraints and bank supervision constraints, this paper investigates the long-term impact of two types of real estate tax policies on economic growth and financial stability, which are the unified tax base assessment ratio and differential tax base assessment ratio for two major housing owners (household and enterprises). It also compares and analyzes the short-term impact of the above two types of real estate tax reform schemes on economic fluctuations and financial risks under the background of potential financial risks facing China’s economy. The results show that: in the long run, the real estate tax will help economic growth, boost household consumption, and effectively suppress the excessive increase in household leverage and asset bubble risk through the “suppression effect” of housing prices and the “redistribution effect” on housing. In the short run, the real estate tax will not intensify the impact of systemic financial risks, so it will not have an adverse impact on the maintenance of financial stability. Different real estate tax policies have different impact on economic growth and financial stability. Compared with the real estate tax with unified tax base assessment ratio, the real estate tax with differential tax base assessment ratio is better for the coordinated development of financial activities and the real economy in the long term and play a stronger role in economic growth, which contributes to the unity of “stable growth”, “risk prevention” and “reform”.