(Re)understanding the relationship between Fiscal Decentralization and property tax revenue: Insights from developing and developed countries.

Abstract

Several countries over the world have experimented with fiscal decentralization policies in order to enhance the autonomy of their respective local governments. This could improve the level of tax revenue and consequently improve public service delivery. In this vein, the present study revisits the impact of fiscal decentralization (FD) on property tax revenue collection in a sample of developed and developing countries over the period 2005–2019. Using OLS fixed effects estimations, we find a strong positive effect of fiscal decentralization on property tax revenues, and a greater level of democracy also contributes to reinforcing the positive relationship between fiscal decentralization and property tax revenue. However, we find that a higher level of control of corruption can cancel the positive effect of fiscal decentralization on property tax revenue. In addition, using quantile regression, the paper shows that countries below the median of property tax revenue are less susceptible to benefit from fiscal decentralization compared to countries above the median levels of property tax revenue. Finally, the study suggests that improving fiscal decentralization can promote property tax revenue collection, which is relevant for both developed and developing countries. The success of policies surrounding the relationship between property tax revenue and fiscal decentralization is contingent upon implementing attendant policies tailored differently across countries with varying initial levels of property tax revenue. Specifically, these policies are unlikely to be effective unless they consider each country’s initial levels of property tax revenue. JEL classification : H71, H72, H77