Revisiting Property Tax Capitalization

This paper investigates the extent of property tax capitalization in the context of a progressive property tax pilot in Shanghai. I utilize a difference-in-differences approach by comparing neighborhoods with different tax rates before and after the implementation of the property taxes. Neighborhoods with a 0.2 percentage point higher marginal property tax rate experience a roughly 3.5% decrease in housing prices relative to their counterparts. The result reflects that 91% of property tax liabilities are capitalized into housing prices. These changes also imply a large wealth redistribution as large as 3.4 years of average disposable income across homeowners