Submissions Accepted for Presentation at the World Bank Land Conference 2024

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Session Overview
01-03: Can property taxation help achieve equity & efficiency objectives?
Tuesday, 14/May/2024:
1:30pm - 3:30pm

Session Chair: Arturo Herrera Gutierrez, World Bank, United States of America
Location: MC 13-121

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The assessment gap: racial inequalities in property taxation

Carlos Avenancio-Leon1, Troup Howard2

1University of California - San Diego; 2University of Utah

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.


To own or to rent? The Effects of transaction taxes on housing markets

Lu Han1, Liwa Rachel Ngai2, Kevin Sheedy3

1University of Wisconsin-Madison, United States; 2Imperial College London and London School of Economics, United Kingdom; 3London School of Economics, United Kingdom

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.


Becoming legible to the state : The role of identification and collection capacity in taxation

Oyebola Okunogbe

World Bank, United States of America

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.


Decentralization, tax administration, and taxation: evidence from brazil's rural land tax

Arthur Braganca1, Diogo Britto2, Alexandre Fonseca3, Davi Moura4, Breno Sampaio5, Andre Sant'anna6, Dimitri Szerman7

1World Bank; 2University of Milan-Bicocca; 3Federal Revenue of Brazil; 4London School of Economics; 5Universidade Federal de Pernambuco; 6BNDES; 7Amazon

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.


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