Abstract This article develops a multi‐sector dynamic stochastic general equilibrium (DSGE) model to evaluate the macroeconomic effects of real estate taxes. The study finds that, under a fixed tax rate, real estate taxes dampen positive fluctuations in household housing consumption, real estate investments, and housing prices. Additionally, if uncertain exogenous shocks lead to changes in the tax rate, real estate taxes can cause short‐term declines in non‐housing household consumption, non‐real estate investments, housing prices, and overall output. In such cases, policymakers should implement an accommodative, price‐based monetary policy to mitigate these adverse effects. When both tax shocks and negative land supply shocks occur, it is recommended that policymakers adopt an accommodative price‐based policy during economic downturns and transition to a quantity‐based policy during upturns. Therefore, the article advocates for real estate tax reform during periods of stable economic conditions and minimal fluctuations in housing prices.
Li et al. (Tue,) studied this question.
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