Rubric Taxing residential property is it a good

Rubric Taxing residential property: is it a good idea? Marta Rodríguez-Vives‡ Public Sector Economics 2019 24, October 2019 * The opinions expressed and arguments employed are those of the author and do not necessarily reflect those of the ECB. www. ecb. europa. eu

Overview 1 Motivation 2 Taxing property 3 Way forward Rubric 2 www. ecb. europa. eu

1. Motivation • Rubric Taxing property has become an issue of considerable public debate, as it seems to be under-tax by international comparisons • Taxing property is a possible source of revenue for government distribution’s role in the economy (public spending) • However, housing is a special good for households. Housing is the main asset for wealth accumulated over the course of people’s working lives • High levels of income and wealth inequality can provoke social and political instability, pressures for redistribution, thus, affect economic growth 3 www. ecb. europa. eu

1. Motivation Rubric Fiscal policies and income distribution Source: based on Rodríguez-Vives and Vedia (2019) 4 www. ecb. europa. eu

1. Rubric Motivation Wealth composition: mainly real estate assets Gini for the main wealth components Other financial assets Deposits Other real estate property Voluntary pension/whole life insurance Other real assets Household's main residence 120% 100% 80% 60% 40% 20% d an ia ak nl Fi ia ov Sl Sl ov en l a ga Po rtu s nd us tri rla et A he g al ta ur bo M N Lu xe m s ru tv ia La ly Cy p ce Ita e n an Fr ai Sp ec nd re G ia la Ire an to n m Es er G Be l gi um y 0% Source: authors’ estimations based on HFCS (ECB) Source: Rodríguez-Vives and Vedia (2019) 5 www. ecb. europa. eu ©

1. Motivation Rubric Housing policy objectives Source: OECD Questionnaire on Affordable and Social Housing (2016). http: /oe. cd/ahd 6 www. ecb. europa. eu

2. Taxing property Rubric Components of property taxation as percentage of GDP (2017), selected countries Source: author calculations based on Eurostat database. 7 www. ecb. europa. eu

2. Taxing property Rubric Property tax as percentage of Household Gross Domestic Income (2017 vs. 2007), selected countries Source: author calculations based on Eurostat and ECB. 8 www. ecb. europa. eu

2. Taxing property Rubric Relationship between property taxation and house prices (2005 -2017), selected countries Source: author calculations based on Eurostat database. 9 www. ecb. europa. eu

3. Taxing property Rubric • Property taxation varies across countries, in terms of rates, collection, cadastral values, tax exemptions, etc. • With few exceptions, there is a relatively little recourse to taxes on net wealth and inheritage and gifts in practice • Need to take into account government housing policies (e. g. tenures rates and affordability), macro and financial stability perspective (household indebtedness, house prices in the cycle), and social preferences • Need to take into account property tax in relation to other fiscal instruments. For instance, taxation should shift away from taxing labor • If tax reform needed, importance of implementation to minimize negative effects on savings and equity 10 www. ecb. europa. eu

2. Taxing property Rubric Summary of the main arguments for property taxation 11 www. ecb. europa. eu

3. Way forward Rubric Next steps: • To implement a dynamic panel to check the response of property tax revenue to changes in: • Housing prices, also by identifying permanent changes in the long-term • Tax rates in the different tax categories • Also analyzing where we are in the Laffer curve in the different scenarios • Simultaneous analysis of income and wealth inequality, within country variation? 12 www. ecb. europa. eu

Rubric Thank you for your attention! 13 www. ecb. europa. eu