China abolished the housing distribution system in 1998, and implemented the housing marketization instead. Since then, the real estate industry has entered a period of rapid development, and became a pillar industry of China's national economy indeed. In the meanwhile, the housing price has been persistently rising, causing a number of problems. Short put the prices of houses are so high that residents cannot afford them. At the same time, investment on the real estate was triggered and so was the speculation desire. In order to regulate the property market and to control the booming housing prices, the Chinese government has taken a number of measures, such as land, monetary and fiscal policies. Among them, the real estate tax policy appears to be an effective tool for real estate market regulation and socio-economic resources allocation. Moreover, It provides revenues to local governments and plays a very important role in the overall tax system. However, its effect has not yet been much pronounced in China. Whether and how does the real estate tax inform the housing price? These problems remain hot topics. This paper combines theoretical study and empirical examination to study the relationship between the real estate tax and housing prices. In the theoretical research, this study takes the modern asset price theory and cost-benefit method to analyze the relationship. In the empirical analysis, this study uses two kinds of datasets to examine the same issue. One is time series data; the other is panel data. In addition, the study examined and tested the relationships and characteristics of variables using the ADF unit root test, co-integration test, vector error correction model, Granger causality test, and other quantitative analysis. As an important factor, local public expenditure is also added in our analysis. Our main conclusions may be succinctly summarized as follows. Theoretical study shows that real estate value will be reduced by levying real estate tax, but will increase by the growth of local public expenditure. Empirical study shows that both real estate tax and local public expenditure have a significant influence on housing price, consistent with the theoretical predictions. Based on the theoretical and empirical analysis, some policy recommendations are then drawn as regards reform of the real estate tax