Property taxes in developing countries are plagued by noncompliance and can exacerbate liquidity constraints. We characterize optimal enforcement and taxation policies as functions of revenue elasticities and measures of taxpayer hardship. We estimate these parameters using multiple sources of variation and administrative data from Mexico City. Both rate increases and enhanced enforcement raise revenue, but liquidity constraints also shape taxpayer behavior. Despite the presence of liquidity constraints, we find that raising tax rates increases welfare. In contrast, enforcement generates higher private costs than welfare benefits. On the margin, welfare-maximizing governments would prefer to increase tax rates rather than enhance enforcement.
This paper was produced as a part of CEPR's Discussion Paper Series (DP15983).
Authors
Associate Director
Anne is head of the tax and development group at IFS and an honorary faculty member at UCL. Her work focuses on tax policy in lower-income countries.
Research Fellow University of Notre Dame
Alejandro is an IFS Research Fellow and an Assistant Professor of Development Economics at the University of Notre Dame.
Karina Ramírez Arras
Report details
- Publisher
- IFS
Suggested citation
A, Brockmeyer and A, Estefan and K, Ramírez Arras. (2021). Taxing property in developing countries: theory and evidence from Mexico. London: IFS. Available at: https://ifs.org.uk/publications/taxing-property-developing-countries-theory-and-evidence-mexico (accessed: 28 March 2024).
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