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

This article places land finance, fiscal pressure, and the real estate tax base within the same analytical framework. Firstly, theoretical analysis has demonstrated a substitution relationship between real estate tax and land transfer fees. Then, based on provincial panel data from China from 2006 to 2022, it empirically examines the influence mechanism of local fiscal factors on the real estate tax base using static and dynamic panel models. The results show that land finance and fiscal pressure significantly positively impact the real estate tax base, playing a crucial role in China's continuous rise in housing prices in recent years. This paper explores real estate tax reform to address local governments' dependency on land finance and fiscal pressures. Additionally, it calculates the tax rates for each province by considering land transfer fees and fiscal deficits as the tax amount. 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.