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Taxing Property in Developing Countries: Theory and Evidence from Mexico

Author

Listed:
  • Anne Brockmeyer
  • Alejandro Estefan
  • Karina Ramírez Arras
  • Juan Carlos Suárez Serrato

Abstract

We study the most under-utilized tax in developing countries—the property tax—by modeling and estimating the welfare effects of tax rate changes and enforcement. The model shows tax hikes impact welfare by reducing compliance and exacerbating liquidity constraints. Enforcement impacts welfare by subjecting non-compliant taxpayers to threats of fines and property seizure. Empirically, administrative data, sharp tax rate increases, and an enforcement experiment show both policies increase revenue. Tax hikes raise welfare since revenue gains surpass liquidity costs. Enforcement reduces welfare as threat costs overshadow revenue increases. Governments can enhance welfare by raising tax rates rather than escalating enforcement.

Suggested Citation

  • Anne Brockmeyer & Alejandro Estefan & Karina Ramírez Arras & Juan Carlos Suárez Serrato, 2021. "Taxing Property in Developing Countries: Theory and Evidence from Mexico," NBER Working Papers 28637, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28637
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    Cited by:

    1. Komatsu,Hitomi & Ambel,Alemayehu A. & Koolwal,Gayatri B. & Yonis,Manex Bule, 2021. "Gender and Tax Incidence of Rural Land Use Fee and Agricultural Income Tax in Ethiopia," Policy Research Working Paper Series 9715, The World Bank.
    2. Antinyan, Armenak & Asatryan, Zareh & Dai, Zhixin & Wang, Kezhi, 2021. "Does the frequency of reminders matter for their effectiveness? A randomized controlled trial," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 752-764.
    3. Antinyan, Armenak & Asatryan, Zareh, 2019. "Nudging for tax compliance: A meta-analysis," ZEW Discussion Papers 19-055, ZEW - Leibniz Centre for European Economic Research.
    4. Kresch, Evan Plous & Walker, Mark & Best, Michael Carlos & Gerard, François & Naritomi, Joana, 2023. "Sanitation and property tax compliance: Analyzing the social contract in Brazil," Journal of Development Economics, Elsevier, vol. 160(C).
    5. Komatsu, Hitomi & Ambel, Alemayehu A. & Koolwal, Gayatri & Yonis, Manex Bule, 2022. "Gender norms, landholdership, and rural land use fee and agricultural income tax in Ethiopia," Land Use Policy, Elsevier, vol. 121(C).
    6. Antinyan, Armenak & Corazzini, Luca, 2021. "Money does it better! Economic incentives, nudging interventions and reusable shopping bags: Evidence from a natural field experiment," Cardiff Economics Working Papers E2021/29, Cardiff University, Cardiff Business School, Economics Section.
    7. Rubolino, Enrico, 2023. "Does weak enforcement deter tax progressivity?," Journal of Public Economics, Elsevier, vol. 219(C).
    8. Maximiliano Lauletta & Felipe Montano Campos, 2024. "Is the forgiveness of a tax amnesty divine? Evidence from Argentina," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(5), pages 1229-1248, October.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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