Abstract
Since the Land Value Increment Tax rate has been considered too high, the high tax rate might result in the lock-in effect on the land resources. Moreover, the Taiwan economy in 2000 was also affected by the depression of world economy; therefore, the demand in Taiwan’s real estate market as well as the consumers’ purchasing power was decreasing. Consequently, the domestic real estate had excess supply, which led to the depression of domestic real estate market. Thus, the Land Value Increment Tax rate was reduced in 2002. Three years later, it was revised to graduated takes of 20%, 30% and 40% for land of general purposes to 5% for lands of self-use. The government hoped that the reform of the Land Tax Act would stimulate economic growth of Taiwan. The policy reforms of 2002 and 2005 were short-term and long-term policies separately. Burman et al. (1994) showed that a temporary tax cut reduces the tax cost of selling now but leaves the tax cost of selling in the future unchanged. In contrast, a permanent tax cut reduces the tax cost of selling at any time. Thus, realizations of capital gains will be higher under a transitory rate cut than under a permanent cut. Moreover, the effect of tax rate can be divided into permanent and temporary effects. Therefore, the purpose of this study aims to distinguish between permanent and temporary tax effects by utilizing the 2002 and 2005 tax reforms. The panel data include 24 counties or cities from 1996 to 2010.