Is property taxation useful for the regulation of residential market? Reflections on Taiwanese experience

With increasing number of arguments by monetary and macro-prudential policies for regulating residential market, property taxation, as a traditional fiscal tool, has once again received more attention in recent years. Is property taxation useful for the regulation of the residential market? There is limited literature that comprehensively analyze the property taxation effects on the residential market including supply and demand market. To interpret the effect of property taxation on residential market, this study constructs a simple theoretical framework from disequilibrium viewpoint of stock-flow model and utilizes the panel data of 20 cities in Taiwan for the period 1982–2016 to verify the hypotheses proposed. Empirical findings indicate that negative effect of property tax on residential supply or demand was not significant in long-run, but only significant in short-run period. Importantly, property taxation cannot accelerate the disequilibrium of the residential market to long-run equilibrium. From the Taiwanese experience, property taxation does not seem to be a useful tool for regulating the residential market and further policy implications are suggested.