Tax policy and toxic housing bubbles in China

Jia, P. and Lim, K.Y. ORCID: 0000-0003-1978-176X, 2020. Tax policy and toxic housing bubbles in China. B.E. Journal of Macroeconomics. ISSN 2194-6116

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Abstract

This paper explores the effects of a government tax policy in a growth model with economic transition and toxic housing bubbles applied to China. Such a policy combines taxing entrepreneurs with a one-time redistribution to workers in the same period. Under the tax policy, we find that the welfare improvement for workers is non-monotonic. In particular, there exists an optimal tax at which social welfare is maximized. Moreover, we consider the welfare effects of setting the tax at its optimum. We show that the tax policy can be welfare-enhancing, comparing to the case without active policies. The optimal tax may also yield a higher level of welfare than the case even without housing bubbles. In addition, our simple numerical exercise shows that the optimal tax rate is about 23 percent , and social welfare is significantly improved with such a tax policy. Finally, we extend the benchmark economy to a multi-period setting and calibrate the model to China. Our results show that a 20 percent tax rate can speed up economic transition and increase output growth. Between 1998 and 2012, aggregate consumption is 4.86 percent higher under active tax policies.

Item Type: Journal article
Publication Title: B.E. Journal of Macroeconomics
Creators: Jia, P. and Lim, K.Y.
Publisher: Walter de Gruyter
Date: 17 August 2020
ISSN: 2194-6116
Identifiers:
NumberType
1341582Other
10.1515/bejm-2019-0155DOI
Divisions: Schools > Nottingham Business School
Record created by: Linda Sullivan
Date Added: 06 Jul 2020 14:40
Last Modified: 26 Aug 2020 13:15
URI: http://irep.ntu.ac.uk/id/eprint/40175

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