Taxing Property in Developing Countries: Theory and Evidence from Mexico

Anne Brockmeyer, Alejandro Estefan, Karina Ramírez Arras and Juan Carlos Suárez Serrato

No 28637, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H21 H26 H71 O23 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: DEV PE
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Citations: View citations in EconPapers (11)

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Working Paper: Taxing Property in Developing Countries: Theory and Evidence from Mexico (2022)
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