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

Local governments' over-reliance on land concession revenues is a significant issue facing the current fiscal system. Real estate tax reform is the fundamental solution to the fiscal dilemma. This paper selects empirical data from 30 provinces from 2007 to 2021. It uses a two-tier stochastic frontier model to study the impact of fiscal changes on the errors in tax base assessment of real estate tax. We find that fiscal changes have a generally significant impact on the assessed values, with the effect of benchmark deviations from assessment errors being greater than benchmark incentives, resulting in a negative comprehensive influence. Based on the tax base assessment, the study predicts the real estate tax rates at the provincial level for 2022-2050 and then calculates the reasonable range of rates for different provinces. The results of this paper prove the necessity of real estate tax reform and help provide implementable reform plans for relevant departments.