Wealth taxation of real estate during the Greek crisis: the perils of ignoring market signals

Christelis, D. (2015) Wealth taxation of real estate during the Greek crisis: the perils of ignoring market signals. Vierteljahrshefte zur Wirtschaftsforschung, 84(3), pp. 61-83. (doi:10.3790/vjh.84.3.61)

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Abstract

During the Greek crisis the wealth tax on real estate (WTRE) was increased four-fold as a percentage of GDP in order to boost fiscal revenues. This increase contributed to an essentially complete freeze of the real estate market, a considerable drop in real estate prices, and a substantial deepening of the recession. Using conservative assumptions, we calculate that the WTRE increases unemployment by 70,000–100,000 persons yearly. Perversely, the net effect of the WTRE increase on fiscal revenues has been, at best, slightly positive if not quite negative, as the WTRE induces large tax losses by lowering household spending and housing investment. Moreover, the real estate market freeze prevents households from accessing their savings embodied in real estate in order to counter the recession’s negative effects, and pay taxes and other debts. Reasons for this policy failure include flawed economic analysis, failure to monitor the real estate market, and cognitive biases.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Christelis, Dr Dimitris
Authors: Christelis, D.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Vierteljahrshefte zur Wirtschaftsforschung
Publisher:Duncker und Humblot
ISSN:0340-1707
ISSN (Online):1861-1559

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