Submissions Accepted for Presentation at the World Bank Land Conference 2024

We document a nationwide “assessment gap” which leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding taxing jurisdictions and property tax rates fixed, Black and Hispanic residents face a 10–13 percent higher tax burden for the same bundle of public services. We decompose this inequality into between- and within-neighborhood components and find just over half of the inequality arises between neighborhoods. We then present evidence on mechanisms. Property assessments are less sensitive to neighborhood attributes than market prices are. This generates spatial variation in tax burden within jurisdiction and leads to over-taxation of highly minority communities. We also find appeals behavior and appeals outcomes differ by race. Inequality does not arise from either (i) racial differences in transaction prices or (ii) differences in features of the housing stock.

Using sales and leasing data, this paper finds three novel effects of a higher property transaction tax: higher buy-to-rent transactions alongside lower buy-to-own transactions, despite both being taxed; lower sales-to-leases and price-to-rent ratios; and longer time-on-the-market. This paper explains these facts by developing a search model with entry of investors and households choosing to own or rent in the presence of credit frictions. A higher transaction tax reduces homeowners’ mobility and increases demand for rental properties, which reduces the homeownership rate. The deadweight loss is large at 113% of tax revenue, with more than half of this due to distorting decisions to own or rent.

Whereas the tax compliance literature emphasizes verifying tax liability amounts, this paper highlights two other tax capacity dimensions of particular relevance in lower-income countries: identifying taxable entities and enforcing collection of known liabilities. Leveraging a newly-digitized property database, a randomized experiment in Liberia finds that including identifying information (owners' names and property photographs) in tax notices more than quadruples the payment rate, from 2 percent to almost 10 percent, when the notice also details noncompliance penalties. A second experiment finds that signaling greater collection probability to delinquent taxpayers further increases compliance. These results highlight the importance of targeted investments in tax capacity.

This paper evaluates a program that partially decentralized the administration of rural land taxes to local authorities in exchange of increases in their share of tax revenues. Using microdata from tax returns, we find that the program led to an expansion of tax revenues by 20\% after five years. Decentralization expanded tax revenues mainly by increasing reported land values. Using satellite data, we find that partial decentralization did not influence farmer behavior significantly. A cost-benefit exercise indicates that partial decentralization had large returns. Overall, the findings indicate that cooperation between local and central authorities can increase property taxation in contexts with incomplete information and weak enforcement capacity.