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Labor tax reductions in Europe: The role of property taxation

Marcin Bielecki () and Nikolai Stähler ()

No 30/2018, Discussion Papers from Deutsche Bundesbank

Abstract: We use a New Keynesian DSGE model with search frictions on the housing market to evaluate how financing a labor tax reduction by higher property taxation affects the real economy and welfare. Search on the housing market enables us to explicitly model stocks and flows, which is necessary to differentiate between recurrent property taxes (levied on stocks) and property transaction taxes (levied to flows). We find that using recurrent property taxation as financing instrument outperforms other instruments although all policy measures increase aggregate economy-wide welfare. Our simulations suggest that using property transaction taxation as financing instrument is the least favorable measure.

Keywords: Search Frictions in Housing Markets; Property Taxation; Tax Reform; General Equilibrium (search for similar items in EconPapers)
JEL-codes: E51 E6 R31 K34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-law, nep-mac, nep-pbe, nep-pub and nep-ure
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:302018

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