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Part I

Overall tax revenue

2. The taxation of property in the EU

The tax regime of property is attracting growing
attention from policymakers. This is due to several
First, a recent strand of the literature on tax reform has
identified taxes on immovable property as one of the
least detrimental to GDP (see e.g. Arnold (2008),
Johansson et al. (2008) and Arnold et al. (2011)).
Given the severity of the recession, it is relevant to
examine forms of taxation that are more growthfriendly. Accordingly, one key element emphasized in
the Council recommendations (24) and the 2012 Annual
Growth Survey is the need to shift the burden of
taxation away from labour taxes, that discourage
employment, towards taxes on consumption and
Second, given the need in many countries to find new
sources of revenue, and the fact that property taxes are
low in many countries, increasing them may offer
treasuries a convenient funding solution already in the
short term. Furthermore, these taxes are usually
characterised by low compliance costs for taxpayers
and, once a system is set up, administrative costs for
tax authorities are also moderate, particularly for some
types of property levies.
Third, recurrent taxes on property offer the advantage
of a high stability of tax revenue, which facilitates
budgetary planning, an attractive feature particularly
for highly indebted countries, for which achieving
budgetary targets with certainty is important to obtain
favourable debt financing conditions on the capital
Fourth, the favourable tax treatment of mortgages is
regarded as one of the contributing factors to the
housing price bubble that has played an important role
in the crisis in several countries. Thus, it is important to
ensure a more balanced tax treatment of residential
housing. This need was stressed in European
Commission (2011d).
Finally, discretionary increases in property taxes might
theoretically offer some potential for limiting 'boom
and bust' cycles in housing prices, by dampening
excessive price increases in the build-up phase (25).
(24) European Council conclusions, 1-2 March 2012 (EUCO 4/1/12 REV 1)
(25) See Allen,F. and Carletti, E., 2011.


This would not be a trivial advantage: large drops in

immovable property prices have typically been an
important component in banking crises (26) and
recessions tend to be deeper when they are
accompanied by a 'bust' (27). Reinhart and Rogoff
provide considerable evidence that collapses in real
estate prices are the main cause of many financial
crises (28). Furthermore, volatility in real estate prices
varies substantially from one country to another, and
this might also be linked to different tax treatment of
housing (Catte et al., 2004). There is therefore an
interest in exploring the suitability of reforms in tax
systems to counter such extreme price fluctuations.


Measurement issues
Until now, no harmonised data on property tax
revenues have been made available on a regular basis
for all EU Member States, as the ESA95 system of
national accounts does not foresee a specific category
for this type of taxes. Data are available only for OECD
Members, leaving out six EU Member States. Housing
prices, too, are difficult to measure owing to the special
characteristics (heterogeneity, infrequent sale and
negotiated prices; see Thwaites, Wood, 2003);
Given the policy importance of property taxes, it has
been decided to include in this year's edition of the
report an overview of property tax revenue in general
with a special focus on recurrent taxes on immovable
properties for the entire EU. The approach taken was
bottom-up, aggregating property-related taxes in the
National Tax List (ESA 95) by applying the OECD
classification (see Box 2.1 for more details). Two
subgroups were identified recurrent and other taxes.
While the former concerns only immovable property
the latter includes also other taxes such as stamp taxes
and capital levies. In practice, these taxes are found
under the ESA95 categories D.29A and D.59A for
recurrent taxes on immovable property and D.91A, B
and D.214B, C for non-recurrent taxes - property
(26) Eichengreen and Bordo (2003) find that all major banking crises in industrial
countries during the postwar period coincided with housing price busts. n
( ) See Claessens, Stijn, M. Ayhan Kose, and Marco E. Terrones, 2008, What
Happens During Recessions, Crunches and Busts?, IMF Working Paper No.
( ) Reinhart, C., Rogoff, K., This time is Different: Eight Centuries of Financial
Folly, Oxford and Princeton: Princeton University Press, 2009.

Taxation trends in the European Union