Property Taxes in the Real World

Abstract

Property taxes are regarded by economists as good taxes for local governments. Yet property tax revenues rarely exceed 3 percent of gross domestic product in any country and usually amount to much less than that. Moreover, jurisdictions that levy property taxes rarely do so in a way that adheres to economic principles. Political pressure to maintain the tax burden at or near its current level for the sake of stability or to favour one group of taxpayers over another often overrides the economics principles of efficiency and equity. The author asserts that no matter how good the property tax is in theory, we need to consider the real-world constraints on the tax. The author sets out what an ideal property tax would look like, contrasting that ideal with what exists around the world, then describes the unique characteristics of the tax that help to explain the gap between theory and practice. Some promising strategies for reform are proposed, along with cautions regarding problematic approaches. Policy makers are well advised to link property tax reform to broader reforms in public sector management aimed at improving public services and governance. Public support for the reform is also very important. Successful implementation requires sustained political will, technical capacity, systems and procedures, financial resources, and time, but it is well worth the effort.

Keywords: Property Taxes, Tax Reform, Tax Policy, Municipal Taxation, Local Government