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Immovable property: where, why and how should it be taxed? A review of the literature and its implementation in Europe
Doris Prammer* 
Article | Year: 2020 | Pages: 483 - 504 | Volume: 44 | Issue: 4 Received: January 13, 2020 | Accepted: September 7, 2020 | Published online: December 1, 2020
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FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
Source: Own representation.
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Maximum
statutory tax
rate on residential property
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Implicit
tax rate
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Property
transfer
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Capital
gains*
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recurrent
property tax (tax revenues/dwellings stock)
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Belgium
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12.5
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16.5
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0.690
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Germany
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6.0
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30.0
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0.130
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Estonia
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no
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income
tax rate
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no
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Ireland
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2.0
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30.0
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0.180
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Greece
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3.1
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suspended
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0.770
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Spain
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10.0
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23.0
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0.340
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France
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5.8
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36.2
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1.350
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Italy
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9.0
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20.0
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0.410
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Cyprus
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8.0
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20.0
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0.220
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Latvia
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22.0
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20.0
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0.100
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Lithuania
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no
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income
tax rate 15
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0.080
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Luxembourg
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10.5
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income tax rate
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0.070
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Malta
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5.0
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8.0
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no
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Netherlands
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2.0
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no
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0.600
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Austria
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3.5
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30.0
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0.030
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Portugal
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8.0
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29.0
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0.360
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Slovenia
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2.0
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25.0
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0.160
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Slovakia
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no
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income
tax rate
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0.160
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Finland
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4.0
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34.0
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0.290
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Source: Own representation based on National Ministries of Finance; Barrios et al.(2019) and Fatica and Prammer (2018) for implicit tax rates.
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Recurrent property tax
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Property transfer tax
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Residential property
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Non-residential property
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Residential property
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Immobile tax base
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Yes
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Yes
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Yes
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Predictable and stable revenues
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Yes
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Yes
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No
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No tax exporting
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Yes
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No
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Yes
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Visible and accountable
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Yes
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No
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Yes
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Fair based on benefits received
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Yes
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No
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?
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Fair based on ability to pay
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Yes
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?
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Yes
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Easy to administer
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Yes
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No
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Yes
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Figure 1Taxation of immovable property over its life-cycle DISPLAY Figure
Table 1Tax rates on residential property in the euro area (in %) DISPLAY Table
Table 2Properties of a good local tax DISPLAY Table
* The views expressed in this paper are exclusively those of the author and do not necessarily reflect those of the OeNB or the Eurosystem. The author would like to thank two anonymous referees, Walpurga Koehler-Toeglhofer, Lukas Reiss, Kilian Rieder and Martin Schneider for valuable suggestions and discussions.
1 The economic argumentation was laid down in Annex IV of the AGS 2012 (EC,  2011). Since then different member states have received the country specific recommendation to shift taxes away from labour to (recurrent) property taxation; e.g. AT in 2013 and 2014. The OECD recommends this shift in its country reports, e.g. for AT in 2017.
2 For the economic discussion on recurrent property taxes, the reader is referred to section 4.1.
3 The cadastral value of a property refers to the value of the land and buildings as recorded in the land register for tax purposes.
4 However, in Croatia a so-called ‘communal fee’ on properties based on its surface is levied.
5 Italy does not levy recurrent property taxes on the primary residence since 2017.
6 Following a constitutional court ruling Germany has to adjust its cadastral values by the end of 2019.
7 According to Johannesson-Linden and Gayer ( 2012) FN 6, BE, ES and IT tax imputed rents only for other than main dwellings. LU taxed imputed rents until 2016 based on the cadastral value; the NL use the market value of the property as the tax base. Additional information on the calculation of imputed rent taxation for other EU countries can be found in Figari et al. ( 20177).
8 The mortgage financing of business property is usually tax deductible in all member states.
9 Tax bases for real estate property when bequeathed are very heterogeneous in member states and tax rates vary considerably among groups of heirs and property value.
10 For the EU and euro area, empirical studies employing the user-cost approach are scarce mostly due to data limitations.
11 This is particularly important when the transition to a VAT for new housing would introduce considerable distortions between new and old housing or lead to lock-in effects if applied to all housing transfers.
12 See Smart ( 2013) for a review of the literature, including the different arguments put forward depending on the “capital tax view” and “benefit tax view” respectively.
13 Given the lack of literature and the heterogenous treatment of real estate property when bequeathed, an assessment of its economic (and empirical) impacts is left for further research.
14 There is also literature assessing the impact of recurrent property taxation on urban sprawl, generally establishing a negative link between recurrent property taxes and urban sprawl (Brueckner and Kim, 2003; Song and Zenou, 2006; Banzhaf and Lavery, 2010). However, housing tax benefits such as mortgage interest deductibility (MID) seem to increase urban sprawl both in the US (Voith, 1999; Glaeser, 2011) and in Europe (for Belgium see: Xhignesse and Verbist, 2019). Nevertheless, MID can increase efficiency in location decisions as it mitigates the tax penalty of working in an area with better-paying jobs and higher house prices (Albouy and Hansen, 2014)
15 Compare the discussion of “capital tax view” vs “benefit tax view” in section 3.3.
16 Poghosyan (2016) has found a limited dampening effect of recurrent property taxes in the US, where recurrent property taxes are levied on property market values. Oliviero et al. ( 2019) find a strong negative relationship between increases in immovable property tax revenues and house prices for a panel of OECD countries.
17 For details on different views on the incidence of property taxation see e.g. Fullerton and Metcalf ( 202), Smart ( 2013), Norregaard ( 2013) and Oates and Fischel ( 2016).
18 For a summary on this OECD work see Blöchliger ( 2015)
19 Lenoel, Matsu and Naisbitt ( 2018)
20 For a theoretical model see Buettner ( 2017).
21 In the Mirrlees Review ( 2011) the argument for abolition also seems to be due to the specific design of the UK property transfer tax (stamp duty).
22 For a literature review on the taxation of capital gains on immovable property see Lenoel, Matsu nad Naisbitt ( 2018).
23 Statistical offices estimate imputed rents on an aggregate level to be included in macroeconomic aggregates such as private consumption expenditure or GDP following ESA conventions.
24 Tax distortions increase with t2, as personal income tax is generally progressive, higher income implies higher t.
25 Cournède, Goujard and Pina ( 2013) rank different consolidation strategies (increases in particular taxes and cuts in specific spending areas) according to their efficiency and equity trade-offs. A consolidation strategy based on recurrent property tax increases ranks comparatively high; consolidation strategies based on other immovable property taxes have not been assessed.
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