Do Special Transfers to Incentivize Local Tax Revenue Effort Work?

Gustavo Canavire-Bacarreza, Kenyi Alain Cansino Montanez, Luis Castro-Peñarrieta, Jorge Martínez-Vázquez and Javier Beverinotti

No 14569, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Many decentralized countries struggle with low levels of subnational tax effort. As a remedy for this situation, specific-purpose incentive schemes designed for own revenue mobilization at the subnational level can be simple, efficient, and cost-effective tools. We examine the effects of an incentive transfer program established in 2010 in Peru aimed at increasing property tax revenue at the subnational level. Specifically, Peruvian districts would receive a monetary transfer if they increased their property tax collection above a certain threshold in the previous year, thereby raising their own revenues. Using quasi-experimental methods, we find that the property tax revenue of districts that (actively) participated in the program significantly increased over the following decade. Our results are robust to the choice of estimator and a series of additional tests.

Keywords: Property tax; Vertical Fiscal Imbalance; Tax Effort (search for similar items in EconPapers)
JEL-codes: C21 H71 H77 (search for similar items in EconPapers)
Date: 2026-03
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:14569

DOI: 10.18235/0013978

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