Cheating under Regulation: Evidence from "Yin-and-Yang" Contracts on Beijing's Housing Market

This paper reveals the role of Yin-and-Yang contracts in evading transaction regulations in China's housing market. Using micro-observations of Beijing's housing resales, we find buyers are engaged in "Yin-and-Yang" contracts with higher degree of under-reporting during "the most stringent regulation in history". We then estimate the extra tax loss from this further under-reporting as an unexpected side effect of regulation policies. Moreover, since "Yin-and-Yang" contracts put more liquidity pressure on the buyers, we also investigate the potential crowding-out effect and enlarged inequality after regulation.