Tax policy and toxic housing bubbles in China

Jia, P. and Lim, K.Y. ORCID: 0000-0003-1978-176X, 2018. Tax policy and toxic housing bubbles in China. Munich, Germany: Ludwig-Maximilians-University Munich Library.

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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, compare to the case without active policies. The optimal tax may also yield a higher level of welfare than the case even without housing bubbles. Finally, we calibrate the model to China. Our quantitative results show that the optimal tax rate is about 23 percent, and social welfare is significantly improved with such a tax policy.

Item Type: Working paper
Description: MPRA (Munich Personal RePEc Archive) paper no. 86576
Creators: Jia, P. and Lim, K.Y.
Publisher: Ludwig-Maximilians-University Munich Library
Place of Publication: Munich, Germany
Date: 9 May 2018
Divisions: Schools > Nottingham Business School
Record created by: Jonathan Gallacher
Date Added: 11 Sep 2018 08:59
Last Modified: 11 Sep 2018 09:02

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