Luxury tax and price changes: evidence from the Taiwan housing market

Many governments worldwide have individual increased tax rates as a means to stem rising housing prices. The present study comprehensively explores whether luxury tax policy influences housing price trends in Taiwan by using quantile regression and regression quantile for panel data with fixed effect methods. A novel analytical framework of four models is proposed in this paper to provide housing market investors with a basis for establishing their trading strategies and to help policymakers better evaluate their policies. First, the results relevant for investors indicate that a positive autocorrelation exists within the previous and current returns of Taiwan’s national housing price index (HPI). This autocorrelation is strengthened when the housing market is undergoing a boom but is weakened when returns in the housing market have an extreme value or normal value. Second, the results relevant for policymakers indicate that Taiwan’s luxury tax policy only affects the prices of existing houses rather than new houses. Moreover, this policy influences the HPI in only a few regions in Taiwan. The policy implication of this study is that a higher luxury tax does not necessarily curb rising housing prices.