Tax Capitalization in Stock Prices following the Reinforcement of Real Estate Tax

In this paper, we examine the market responses to changes in property tax policies. The Participatory Administration introduced a number of measures specifically targeted at stabilizing the real estate market. Accordingly, the government reinforced tax regulations during the first half of the administration. This essay investigates whether the tax capitalization effect of tax policy announcements have an impact on stock prices as future tax expenses are reflected in firm value. We find the tax capitalization effects of comprehensive real estate holding tax to have a negative impact on stock prices throughout the four stages of the legislative process. To reduce confounding effects of non-tax policies that were announced with real estate tax policies, we conduct a keyword count on a newspaper archive and find that the impact of tax policies dominate that of non-tax policies. By conducting empirical tests on the stock market response to government tax policies, this essay presents a framework to analyze the economic consequences of government real estate policies.