Taxing Property in Developing Countries: Theory and Evidence from Mexico

94 Pages Posted: 5 Apr 2021 Last revised: 10 Apr 2021

See all articles by Anne Brockmeyer

Anne Brockmeyer

World Bank

Alejandro Estefan

University of Notre Dame

Karina Ramírez Arras

Mexico's Ministry of Finance

Juan Carlos Suárez Serrato

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: April 2021

Abstract

Property taxes in developing countries are plagued by noncompliance and can exacerbate liquidity constraints. We characterize optimal enforcement and taxation policies as functions of revenue elasticities and measures of taxpayer hardship. We estimate these parameters using multiple sources of variation and administrative data from Mexico City. Both rate increases and enhanced enforcement raise revenue, but liquidity constraints also shape taxpayer behavior. Despite the presence of liquidity constraints, we find that raising tax rates increases welfare. In contrast, enforcement generates higher private costs than welfare benefits. On the margin, welfare-maximizing governments would prefer to increase tax rates rather than enhance enforcement.

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Suggested Citation

Brockmeyer, Anne and Estefan, Alejandro and Ramírez Arras, Karina and Suárez Serrato, Juan Carlos, Taxing Property in Developing Countries: Theory and Evidence from Mexico (April 2021). NBER Working Paper No. w28637, Available at SSRN: https://ssrn.com/abstract=3819540

Anne Brockmeyer (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Alejandro Estefan

University of Notre Dame

Karina Ramírez Arras

Mexico's Ministry of Finance ( email )

Av. Insurgentes Sur No. 1971
Torre III, Piso 9
Mexico City, CDMX 01020
Mexico

Juan Carlos Suárez Serrato

Duke University - Department of Economics ( email )

Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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