Tax Evasion in the Housing Market: Identification and Exploration

40 Pages Posted: 27 Nov 2017 Last revised: 25 Jul 2019

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 recognized as a fertile ground for tax violations. Specifically, reporting a price lower than the true transaction price in order to avoid tax payments is a prevalent technique. We propose an empirical method for identifying housing transactions that are suspected of under-reporting. Based on all reported housing transactions in Israel over the period 1998–2015, we conclude that about 8% of the transactions are under-reported, with an average price report of 30% below the projected true price. Also, the likelihood to under-report is positively associated with the total tax liability and positively (negatively) associated with the crime rate in (the socioeconomic level of) the area in which the transaction occurs. Compared to single unit owners, real estate investors are less likely to engage in under-reporting. Our empirical approach may serve tax enforcement authorities in promoting tax collection in the real estate market.

Keywords: under-report, false price, housing, tax evasion

JEL Classification: H26, R30

Suggested Citation

Ben-Shahar, Danny and Golan, Roni and Sulganik, Eyal, Tax Evasion 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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