Tax Evasion, Capital Gains Taxes, and the Housing Market

55 Pages Posted: 12 Sep 2018 Last revised: 12 Nov 2018

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Keyang Li

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Yu Qin

National University of Singapore (NUS) - Department of Real Estate

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate; Tsinghua University - Department of Construction Management

Jubo Yan

Nanyang Technological University

Date Written: November 2018

Abstract

In this paper, we exploit a policy shock that differentially increased capital gains taxes for some residential property sellers and document tax evasion in the residential resale market in China. Having precise information of the transaction price and the reported price to the tax authority, we show that after the capital gains tax increase, property seller’s reported price at the tax authority is 15% lower. We also document that the policy has strong heterogeneous effects, wealthy cash buyers are 5.6% more likely to buy a house as opposed to buyers who need financing. This is mainly because financing buyers would like to have a higher reported price to secure higher bank financing but the seller wants to have a lower reported price to evade taxes. This exasperates wealth inequality in a rising housing market.

Keywords: Tax Evasion, Capital Gain Tax, Housing Market, Housing Policy

JEL Classification: H26, R21, R31

Suggested Citation

Agarwal, Sumit and Li, Keyang and Qin, Yu and Wu, Jing and Yan, Jubo, Tax Evasion, Capital Gains Taxes, and the Housing Market (November 2018). Available at SSRN: https://ssrn.com/abstract=3241127 or http://dx.doi.org/10.2139/ssrn.3241127

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Keyang Li

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

Yu Qin

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Jing Wu

Tsinghua University - Hang Lung Center for Real Estate ( email )

HeShanHeng Building
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Tsinghua University - Department of Construction Management ( email )

Heshanheng Building
Tsinghua University
Beijing, 100084
China

HOME PAGE: http://thuwujing.net

Jubo Yan

Nanyang Technological University ( email )

HSS 04-53, 14 Nanyang Drive
Singapore, 639798
Singapore

HOME PAGE: http://beeconlab.org/jyan

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