  This paper combines and develops the models in Lastrapes (2002) and Mankiw &
Weil (1989), which enables us to analyze the effects of interest rate and
population growth shocks on housing price in one integrated framework. Based on
this model, we carry out policy simulations to examine whether the housing
(stock or flow) tax reduces the housing price fluctuations caused by interest
rate or population growth shocks. Simulation results imply that the choice of
housing tax tools depends on the kind of shock that housing market faces. In
the situation where the housing price volatility is caused by the population
growth shock, the flow tax can reduce the volatility of housing price while the
stock tax makes no difference to it. If the shock is resulting from the
interest rate, the policy maker should not impose any kind of the housing
taxes. Furthermore, the effect of one kind of the housing tax can be
strengthened by that of the other type of housing tax.
