Taxing Immovable Property Revenue Potential and Implementation Challenges

Abstract

The tax on immovable property has been characterized as probably the most unpopular among tax instruments, in part because it is salient and hard to avoid. But economists continue to emphasize the virtues of the property tax owing to its relatively low efficieny costs, benign impact on growth, and high score on fairness. It is, therefore, generally considered to be underutilized in most countries. This paper takes stock of the arguments for using real property taxation, and presents an updated data-set for high-and middle income countries to illustrate its use. It also reflects the renewed and widespread interest in property tax reform globally, and discusses the many policy and administrative issues that must be carefully considered as prerequisites for successful property tax reform.

A Sub-national Perspective on Financing Investment for Growth II - Creating Fiscal Space for Public Investment

“…They find that property taxes decrease both short and long-run volatility, and that the shift from property taxes to consumption taxes has generated a higher short-run volatility within counties' revenues. Norregaard (2013) shows that, in the United States, property taxes tend to be less volatile than other sources of tax revenue; in particular, property taxes were more stable that the personal income tax or the sales tax during the 2008-2009 recession.…”

Fiscal Resources for Inclusive Growth

“…By levying property taxes, the government hopes to curb speculation and keep housing affordable in addition to reducing land grabbing from collectives by local governments. This tax can strengthen local government revenues since current local government land grabbing practices contribute to the real estate fever (Fung 2013, The Economist 2012, and Norregaard 2013 (Tables 2 and 4, and Figure 1). The most serious limitation is that the level of government-central or consolidated-is not the same for all.…”

“…30 The LPT rate can be ad valorem or more typically specific but tied to property characteristics. Coverage refers to the proportion of taxable properties actually taxed, varying between 30% in some developing economies to as high as 98% (Norregaard 2013). In rapidly expanding cities, identifying new properties to keep the fiscal cadaster up to date is a challenge but one that can increasingly rely on technology, such as satellite imagery.…”

“…Instead, many property tax systems base property values on a combination of area and property characteristics often via a prescribed and periodically updated 26 Auction design theory is discussed in Klemperer (2004). 27 The discussion here mainly draws on Norregaard (2013) and UN-Habitat (2011). Information on Latin America's underutilization of property taxes and their suggestions for strengthening collection are in Corbacho, Cibils, and Lora (2013).…”

“…Information on Latin America's underutilization of property taxes and their suggestions for strengthening collection are in Corbacho, Cibils, and Lora (2013). 28 Information on property tax revenue for the year 2010 for a sample of countries, including eight in developing Asia, is in Norregaard (2013). He reports property tax contributions to revenue at less than 1% of GDP in all eight: Afghanistan, 0.23; Armenia, 0.24; Azerbaijan, 0.36; the People's Republic of China (PRC), 0.51; Georgia, 0.92; Kazakhstan, 0.56; Mongolia, 0.16; and Singapore, 0.90.…”