Improving Intergovernmental Relations
Edited by Giorgio Brosio and Juan P. Jiménez
Chapter 7: Explaining property tax collections in developing countries: the case of Latin America
The property tax is arguably the most important source of own revenues for local governments around the world. Many fiscally decentralized economies as well as an increasing number of countries that have embarked upon a decentralization process look at the property tax as the main source of revenue autonomy for their subnational governments. This practice is well matched with policy principles. There is widespread agreement among economists and decentralization experts that, although not entirely perfect, the property tax possesses several characteristics that are desirable in the context of subnational government finance. Besides its theoretical advantages, however, in practice all is not well with the property tax. It is difficult to implement, costly to administer, and unpopular among taxpayers. It is well known that many countries around the world struggle to produce any significant amounts of revenue from this tax source. These difficulties are more prevalent among developing countries and, particularly in Latin America, the property tax continues to be a predominant policy concern among policy makers. With very few exceptions, Latin American countries have not been able to develop revenue-productive property tax systems. Moreover, Latin America has been identified in the economic literature as a region with relatively low tax effort (Bird et al., 2006), and with a level of tax revenue performance that is lower than the average in developing and transition countries (Ahmad and Brosio, 2008; Bird et al., 2008). The problems of low tax effort and revenue performance are especially acute and challenging in the case of the property tax.
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