Taxing Land and Property in Emerging Economies: Raising Revenue...and More?

This paper discusses the roles that real property taxes may potentially play in developing countries both as a source of local revenue and as part of land use policy. We then describe how very far reality diverges from this prescription and note some reasons why it may prove more difficult to reform property taxes than other taxes. To move forward with property tax reform one must not only be modest with respect to the real potential for change but also careful to get some critical details right. In particular, we argue that it seldom makes sense to move quickly to a modern ‘market value’ system in less developed countries. We also suggest that emerging countries should focus primarily on developing a sound local property tax rather than venturing down this path of trying to use land and property taxes primarily as instruments of land policy. Finally, we conclude by using the case of China to stress the need to pay much more attention to the quite different rural and urban situations in developing countries in designing and implementing land and property taxes as an effective source of local revenue.