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 2.73% decrease in housing prices relative to their counterparts. The result reflects that at least 71% of expected property tax liabilities are capitalized into housing prices in a year. These changes also imply a large wealth redistribution as large as 2.68 years of average disposable income across homeowners. •The property taxes led to a 2.73% more decrease in prices for higher-taxed houses.•At least 71% of property tax liabilities could be capitalized into housing prices.•The changes imply a wealth redistribution of 2.68 years of average disposable income.