Greener on the Other Side: Inequity and Tax Compliance

Michael Best, Luigi Caloi, Francois Gerard, Evan Kresch, Joana Naritomi and Laura Zoratto

No 20510, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Governments frequently use observable tags as imperfect proxies to measure tax bases or household means, leading to inequities among equally-deserving individuals. This paper studies the efficiency effects of such misclassification in the context of the property tax in Manaus, Brazil. We leverage quasi-experimental variation in inequity generated by the boundaries of geographic sectors used to compute tax liabilities, as well as by a tax reform, in a series of augmented boundary discontinuity designs. Inequity significantly reduces tax compliance. The effect is concentrated among the overtaxed, and accounts for roughly 40% of the compliance change at sector boundaries. Combining our empirical results with a simple model of presumptive property taxation shows that optimal progressivity can be considerably lower once we account for inequity responses, and that investments in improving fiscal capacity to accurately assess properties can bolster progressivity.

Keywords: Tax evasion; Property taxation (search for similar items in EconPapers)
JEL-codes: H21 H26 H71 O17 (search for similar items in EconPapers)
Date: 2025-07
New Economics Papers: this item is included in nep-iue, nep-pbe and nep-pub
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Citations: View citations in EconPapers (1)

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Working Paper: Greener on the Other Side: Inequity and Tax Compliance (2025)
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