Local Fiscal Sustainability and Real Estate Tax Reform

This study examines the tax base assessment and tax rate calculation related to real estate. In the tax base, we construct a bilateral stochastic frontier model and analyze data from 30 provinces from 2007 to 2021. The benchmark incentive and benchmark deviation influences of fiscal factors increase and decrease the assessed value of tax base, respectively. Combined, these effects are negative and vary by temporal and spatial distribution. Based on the tax base assessment, we analyze provincial data from 2010 to 2021 to predict property tax rates at the provincial levels from 2022 to 2050. When the long-term growth gap of the land transfer fee is the real estate tax, the provincial tax rate is reasonable, within the [0.15%, 2%] range. Additionally, the real estate tax, which can only compensate for the growth gap in land transfer fees, cannot completely replace all local fiscal revenue from land financing.