An Analysis of the Effect of the 2016 Income Tax Reform on Taiwan’s Housing Prices

Abstract

This study applies the panel data estimation to analyze the effect of the 2016 income tax reform, which taxes the transaction income based on the integrated housing and land prices, on Taiwan’s housing prices. The sample period is from 2011 to 2020, and the average transaction price per Taiwanese ping of the house is used for the analysis. The results show that the housing price per ping negatively correlates to the house size; on the other hand, the housing price positively correlates to the district’s housing stock. The effect of the total population, labor force participation rate, and the time dummy variable of the 2016 income tax reform are insignificant. The 2016 income tax reform did not have a significant effect on the housing price is due to that the reformed tax system only applies to the sale of real estate acquired after 2016, while the sale of real estate acquired before 2016 is still taxed under the old system, i.e., land value increment tax and property transaction income tax are levied separately on land and houses. This study suggests that the local government should assess the tax base of real estates based on the market level, which induces those who own multiple real estates to sell their real estates.