Chapter 15: Local property taxation and benefits in developing countries: overcoming political resistance?
Some form of property taxation has existed since ancient times. While the taxation of land has been a mainstay of public finances through the Middle Ages in both Europe and Asia, it has all but ceased to be a significant revenue source in any part of the world. Some of the reasons for the decline of the land tax, for example in the Indian sub-continent, reflect the political economy constraints that also bedevil the urban property tax. In this chapter on local taxation, our focus is largely on property tax. Property tax has an increasingly important role to play in the development of an urban strategy that underpins sustainable growth (see Bahl and Linn, Chapter 13, this volume), even if the challenges of design and implementation are formidable. This is not only linked to the establishment of local hard budget constraints and accountability (Ambrosanio and Bordignon, Chapter 10, this volume), but the tax also facilitates access to credit needed to finance a sustainable urbanization strategy. The taxation of built-up land has historically been the backbone of local taxation in advanced countries, and its importance has grown with urbanization. The local focus facilitates the implementation of the benefit principle. However, it can also allow the implementation of the ability-to-pay principle, approximating an income tax. The ability-to-pay aspect of property taxation is reflected in the traditional literature on regressive incidence, as well as the ‘newer’ views that claim that it is progressive (attributed to Mieszkowski, 1972).
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