An Empirical Analysis Of The Influence Of Property Tax Reform On Local Fiscal Revenues And Expenditures

Since the central government for the first time proposed property tax be collected at an opportune time in October2003, some developed areas such as Beijing, Chongqing, Tianjin and Shenzhen have successively launched "idling" pilot projects (tax levy before legislation). In early2011, Shanghai and Chongqing started to collect housing property tax targeted at residential buildings, which was an effective attempt for the successful rolling out of property tax reform on a national scale. But in terms of how to effectively collect property tax nationwide without harming interests of the stakeholders, there is still a lack of related empirical research in China. The reason that property tax has yet to be collected since the proposal ten years ago is that local governments have been standing in the way, as they are heavily financed by land transfer incomes particularly in recent years. They therefore have strong resistance against collecting property tax. Under such circumstances, with property tax reform as the entry point, this thesis first gives an introduction to property tax and the property tax reform plan, and then applies modeling techniques using panel data where tax base is divided into two categories—for commercial residential buildings and for commercial buildings—and regression analysis is made respectively aiming at the whole country, the eastern region, the central region and the western region. By doing so it gives a quantitative analysis of the shortfall in fiscal revenues caused by property tax reform so as to lay a theoretical foundation for the successful extension of property tax across the country.In order to integrate property tax aimed solely at commercial buildings at present and urban land use tax, the property tax reform plan proposed in this thesis expands the tax base to include commercial residential buildings, and changes the tax base assessment method from the previous book value to market evaluation. Empirical analysis has shown that property tax reform does not widen the gap between fiscal revenues and expenditures of local governments, but instead it can effectively narrow it. In general, the shortfall is significantly reduced in all regions, albeit with varying degrees of the reform impact on the country as a whole, the eastern, the central and the western regions. Among them, based on tax base I, the shortfall in the western region has the biggest drop, with the central region and the whole country on its heels, and that in the eastern region has the smallest fall. Based on tax base II, the shortfall in the central region experiences the largest narrowing, followed by the country as a whole and the western region, and that in the eastern region has the smallest cut. This demonstrates the following three points:first, both in the short term and in the medium-and long-term, the property tax reform plan will play a positive role in closing the gap between fiscal revenues and expenditures of Chinese local governments; second, the property tax reform plan does not develop more tax categories, which helps save tax cost under the current taxation system and remarkably cut the shortfall in local fiscal revenues; third, because regions differ in socioeconomic levels and structures of real estate market, they should be treated differently when it comes to setting property tax rates.