Tax Fraud in the Housing Market: Identification and Exploration
29 Pages Posted: 27 Nov 2017 Last revised: 30 Nov 2017
Date Written: November 1, 2017
The real estate market is often recognized as a fertile ground for those seeking to engage in tax fraud. In particular, reporting a price lower than the true transaction price in order to avoid tax payments is one of the most prevalent fraud techniques. We propose an empirical method for identifying housing transactions that are suspected of under-price reporting. Based on all reported housing transactions in Israel over the period 1998–2015, we find that, given reasonable assumptions, about 2%–14% of the transactions are under-price reported, with an average price report of 19%–36% below the true price. We further find that the likelihood to under-price report associates positively with the total tax liability and the crime rate in the area in which the transaction occurs, and negatively with the purchaser being an experienced investor. The proposed method may be adopted by tax enforcement authorities in order to promote tax collection in the real estate market.
Keywords: under-price, false price report, housing, tax evasion
JEL Classification: H26, R30
Suggested Citation: Suggested Citation