Working Paper: NBER ID: w28637
Authors: 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.
Keywords: property tax; developing countries; tax compliance; liquidity constraints; welfare effects
JEL Codes: H21; H26; H71; O23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Welfare-maximizing government preference (D69) | Tax policy (H29) |
| Tax rate increases (H29) | Property tax revenue (H71) |
| Tax rate increases (H29) | Taxpayer compliance (H26) |
| Enforcement actions (G18) | Property tax revenue (H71) |
| Enforcement actions (G18) | Utility costs for noncompliant taxpayers (H29) |
| Tax rate increases (H29) | Welfare impact (D69) |
| Enforcement actions (G18) | Overall welfare (I31) |
| Enforcement letters (H26) | Taxpayer payment likelihood (H22) |