Can property tax curb housing costs in China? New insights from Chongqing with Bayesian synthetic control

Abstract

This study explores whether property taxes can effectively curb housing costs, contributing new evidence to the literature on fiscal policies and housing markets. Existing research highlights the regulatory potential of property taxes in developed economies but offers limited insights from emerging markets. We employ monthly data from 64 Chinese cities (2009–2012) and a Bayesian synthetic control approach that addresses the challenge of many potential control units with limited observations. Our findings reveal that Chongqing’s pilot tax reduced average rents by 6.51%, with a delayed peak impact of around 10% in the eighth month. These results highlight how increased holding costs curb speculative incentives, eventually passing through to rental markets. By demonstrating the tax’s substantial dampening effect and the importance of anticipating implementation lags, this study provides critical insights into how property taxes regulate housing markets and offers implications for policymakers seeking to curb speculation while improving housing affordability.