Tax Fraud in the Housing Market: Identification and Exploration

29 Pages Posted: 27 Nov 2017 Last revised: 30 Nov 2017

See all articles by Danny Ben-Shahar

Danny Ben-Shahar

Tel Aviv University

Roni Golan

Technion-Israel Institute of Technology; Tel Aviv University - Coller School of Management

Eyal Sulganik

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship

Date Written: November 1, 2017

Abstract

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

Ben-Shahar, Danny and Golan, Roni and Sulganik, Eyal, Tax Fraud in the Housing Market: Identification and Exploration (November 1, 2017). Available at SSRN: https://ssrn.com/abstract=3075073 or http://dx.doi.org/10.2139/ssrn.3075073

Danny Ben-Shahar (Contact Author)

Tel Aviv University ( email )

Tel Aviv
Israel

Roni Golan

Technion-Israel Institute of Technology ( email )

Technion City
Haifa 32000, Haifa 32000
Israel

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Eyal Sulganik

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel
972-9-9572307 (Phone)
972-9-9568605 (Fax)

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