Capitalization of Taxation and Local Public Spending in Property Values: Evidence fro

2020年04月17日 16:30
Lincoln Institute Book Series

作者:Joyce Yanyun Man; Siqi Zheng;



This study aimed to estimate the rate of capitalization of local taxes and public spending using the data for over 200 Chinese cities. In China, all tax rates are determined by central government, and each provincial/local government is assigned a share of revenue collections within its boundaries. Tax administration is a shared responsibilities between central and local governments. The central government is exclusively entitled to impose taxes, and only provincial level of government can make decisions with respect to tax rates within the limits set by the central government, Unlike Local governments in the U.S. that relies heavily on property tax for local public finance, Chinese local governments have all land and property tax revenue as well as business tax, income tax from local enterprises, personal income taxes, receipts of land leasing and transfers, estate tax, stamp tax.

In this study, we regress the median home value of Chinese cities on the local taxes and pubic spending as well as other factors identified to influence the housing price of a jurisdiction. The results from this study aims to make a significant contribution to capitalization literature. First, previous research on the capitalization theory still have not reached a consus. Empirical evidence from China shall add to the debate upon the incidence of the local taxes such as property tax and the extent of capitalization of local fiscal policies. It may provide empirical evidence on the validity of Tiebout Hypothesis in a non-U.S. environment. Second, the empirical studies using U.S. data suffer from the endogeneity problem that is fundamental to this literature because the median home value and the tax rate term are simultaneously determined due to the residual property tax system and the definition of the effective tax rate often used by researchers in their capitalization study including Oates(1969). It is difficult to determine the direction of causation between tax rates and home values. However, in China the tax rate is exogenous because it is set by the Central government and selected by the provincial government, The local government in China may have varying efforts in administrating and collecting the tax revenues. Our sample of data is for 220 cities in 31 provinces, allowing for a large amount of sample variation in local tax rate and public spending. Third, the local governments in China also administer taxes other than the land and property taxes such as value added tax and business tax and corporate and personal income tax. The impact of these taxes on housing value may lead to a broad discussion of the degree of substitution between the various inputs at different sectors (industries).

关键词:capitalization of local taxes; property tax; local public finance


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