Property Taxes in Metropolitan Cities

In this paper, William J. McCluskey and Riel C. D. Franzsen review property taxation focusing on metropolitan cities in developing and transitional countries. Since there is no comparative data to rely on the paper presents a database constructed from a sample of metropolitan cities (metros). Using this sample as illustrative they examine these important questions:

• What is the revenue performance of the property tax?
• Is there a pattern to the practice of property taxation among large urban local governments?
• What choices have metros made about administration of the metro property tax?
• To what extent do metros utilize economies of scale to drive efficiencies in the administration of the property tax?
• Do metros have different powers in property taxation compared with other local governments in the country?
• What are the main obstacles to overcome if the effective rate of property tax is to be increased in metros?

The paper points out that a variety of tax bases are utilized in different jurisdictions ranging from simple or calibrated area-based taxes to value-based taxes. Regarding the latter, examples of land-value or site-value taxes, annual or rental-value taxes, and capital-improved (market-value) taxes are considered. The use by a city of a particular tax base can often be traced to the historical British or French rental value approach; however, with the passing of time, property markets in cities evolve, often creating a disjoint between the current practice and the status of the property market. Also with rapid urbanization occurring in many cities maintenance of tax rolls and valuation records is a major undertaking and the property tax can be difficult to administer.

This paper was presented at a 2011 conference at The Brookings Institution organized by the Lincoln Institute of Land Policy and is Chapter 7 of the book Financing Metropolitan Governments in Developing Countries.