Wealth Taxation of Real Estate During the Greek Crisis: The Perils of Ignoring Market Signals

Dimitris Christelis

Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, 2015, vol. 84, issue 3, 61-83

Abstract: During the Greek crisis the wealth tax on real estate (WTRE) was increased four-fold as a percentage of GDP in order to boost fiscal revenues. This increase contributed to an essentially complete freeze of the real estate market, a considerable drop in real estate prices, and a substantial deepening of the recession. Using conservative assumptions, we calculate that the WTRE increases unemployment by 70,000–100,000 persons yearly. Perversely, the net effect of the WTRE increase on fiscal revenues has been, at best, slightly positive if not quite negative, as the WTRE induces large tax losses by lowering household spending and housing investment. Moreover, the real estate market freeze prevents households from accessing their savings embodied in real estate in order to counter the recession’s negative effects, and pay taxes and other debts. Reasons for this policy failure include flawed economic analysis, failure to monitor the real estate market, and cognitive biases.

Keywords: Wealth tax; real estate; market collapse; liquidity constraints; multiplier; Greek crisis (search for similar items in EconPapers)
JEL-codes: D14 E21 E22 E62 H20 H31 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.3790/vjh.84.3.61 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwvjh:84-3-5

Access Statistics for this article

Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research is currently edited by Marcel Fratzscher, Martin Gornig, Claudia Kemfert, Alexander Kritikos, Stefan Liebig, Lukas Menkhoff, Dorothea Schäfer, Bernhard Emunds, Thomas Gehrig, Horst Gischer, Hans-Helmut Kotz, Claus Michelsen, Doris Neuberger, Andreas Pfingsten and Andreas Stephan

More articles in Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().