Local Fiscal Dilemma and Real Estate Tax Reform: Evidence from China

This paper places land finance, fiscal pressure, and the real estate tax base within the same analytical framework to explore China's real estate tax reform. Firstly, based on provincial data in China from 2006 to 2022, the BLUE and the two-tier stochastic frontier models were used to empirically test the impact of local fiscal factors on the real estate tax base. Then, using the tax rate calculation formula, the average tax rates for China and different provinces from 2018 to 2022 were calculated by treating land transfer fees and fiscal deficits as tax amounts. The results indicate that land finance and fiscal pressure have a significant positive impact on the real estate tax base, playing a crucial role in China’s continuous rise in housing prices in recent years. Meanwhile, real estate tax should be levied by province, and the tax rate should be adjusted according to local conditions. The research findings provide valuable references to local governments for the comprehensive implementation of the real estate tax. As research on factors that affect real estate tax base is scarce, this study aims to fill this gap.