Handbook of Multilevel Finance
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Handbook of Multilevel Finance

Edited by Ehtisham Ahmad and Giorgio Brosio

This Handbook explores and explains new developments in the “second generation” theory of public finance, in which benevolent rulers and governments have been replaced by personally motivated politicians and the associated institutions. Following a comprehensive introduction by the editors, the renowned contributors present fresh and original perspectives on the key multi-level issues, along with recent developments in theory and practice, as they relate to taxes, budget systems, the management of liabilities and macroeconomic stability. The book also explores special issues concerning the poor and marginalized, structural change and the environment, natural disasters, and the task of overcoming conflicts whilst keeping countries together.
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Chapter 15: Local property taxation and benefits in developing countries: overcoming political resistance?

Ehtisham Ahmad, Giorgio Brosio and Caroline Pöschl


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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