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A model of safe asset shortage and property taxes in China

Published online by Cambridge University Press:  20 December 2024

Wenni Lei ,
Yuwei Luo  and
Dongzhou Mei
Wenni Lei
Affiliation:
School of Economics, Minzu University of China, Beijing, China
Yuwei Luo*
Affiliation:
Research Center, China Cinda Asset Management Co., Ltd., Beijing, China China Post-doctoral Research Center, Renmin University of China, Beijing, China
Dongzhou Mei
Affiliation:
School of International Trade and Economics, Central University of Finance and Economics, Beijing, China
*
Corresponding author: Yuwei Luo; Email: luoyuwei@cinda.com.cn
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Abstract

Real estate is a major component of China’s national wealth, serving as a key store of value. Property taxes potentially influence households’ belief in the stability of the housing market, resulting in varying effects of such taxes. This paper constructs an equilibrium model of stores of value to examine these effects under diverse beliefs. The results show that property taxes can constrain the growth of housing prices if households maintain their belief in the future stability of housing values. However, damaging this belief would lead to a safety trap with a decline in output. The paper also demonstrates that using tax revenue to finance government bond issuance can be an effective way to lower housing prices and increase output.

Keywords

Property tax reformstore of valuesafe asset shortagesafety trapE1E4G1G2R2R3

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e64
Copyright
© The Author(s), 2024. Published by Cambridge University Press

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