Higher property-tax rates raise welfare in developing countries
Causal evidence from Mexico shows raising property-tax rates increases welfare — though coercive enforcement, unlike rate increases, can reduce it.
The Claim
In developing economies, raising the rate of recurrent property (and land) taxation tends to increase welfare — generating revenue with little distortion — making it one of the more attractive fiscal tools where state capacity is weak.
The Evidence
- Brockmeyer et al. (2021, NBER) use natural experiments in Mexico and find that property-tax rate increases raised welfare, while aggressive enforcement against delinquents could lower it. The gains come from the rate on compliant owners, not from coercion.
- This aligns with the IMF's global assessment that property/land taxes are efficient but under-used, with large untapped potential in developing countries.
The Evidence in Detail
The institutional record around the experimental core. The World Bank's 128-country analysis (2020) identifies what drives successful property and land taxation across the developing world; the IMF's 2025 capacity paper argues property taxation is a large, underused, administratively demanding revenue source for developing countries; and Franzsen & McCluskey's Africa survey (2017) — 29 country reviews — shows the tax is efficient in theory but severely constrained in practice by valuation, identification, and enforcement capacity. Together they frame the experimental evidence: the welfare gains are real where administration works, and administration is the binding constraint.
Strength of Evidence
Moderate. The Brockmeyer evidence is causally rigorous but from one country; generalisation to other contexts is plausible but not established.
See Also
Sources
- Brockmeyer et al. (2021), "Taxing Property in Developing Countries," NBER — used for the causal (Mexico City) finding that rate increases raise welfare while coercive enforcement can reduce it. wiki summary
- IMF (2013), "Taxing Immovable Property: Revenue Potential and Implementation Challenges" — used for the revenue-potential estimate and the administrative constraints framing. wiki summary