Taxing Land and Property in Emerging Economies

Richard M. Bird and Enid Slack examine the potential of land and property taxation in developing and transition countries. Bird and Slack present a less optimistic view of the use of land and property taxation in developing and transition countries. First, they caution policy makers and analysts that in developing countries the prospects of land and property taxes may not be realized. In terms of its role in local public finance, property tax revenue accounted for an average of 0.43 percent of GDP and 22.3 percent of local revenue in developing countries during the 1970s, 1980s, and 1990s. Although they do play a role in financing local expenditures, property taxes are barely significant, because, according to Bird and Slack, they are more difficult to reform than other taxes.

These difficulties include the disconnection between public service provisions and tax collection, the uncertainty involved in the distribution of the economic incidence of the property tax, technical issues of assessing property values (or land values alone) for tax purposes, and complications in tax administration. Because of these problems, Bird and Slack suggest that the rapid implementation of a market value–based property tax system in developing countries may not be viable. In fact, a focus solely on tax assessments may undermine the entire reform effort.

The reform goals must be clear, and they should be primarily to raise public funds and not to influence land use and economic development. In addition, political will, strong commitment from all levels of government, and thoughtful planning on legislation, administration, training, and adjudication are all important prerequisites for successful reform. Bird and Slack conclude their survey of property taxation in developing and transition economies by urging that more attention be paid to urban and rural differences (and the unique conditions in the areas between the two) in property tax reform. A brief illustration of how some of these arguments may be applied to China’s current property tax reform is also provided.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2006 and is Chapter 9 of the book Land Policies and Their Outcomes.