Urban Property and Land Taxation in Argentina
The unsatisfactory operation of the fiscal federalism in Argentina has resulted in new reform initiatives to reduce the imbalances between collections of own resources and expenditures between the central and sub-national government levels. The objective of this study is to evaluate the advantages and disadvantages of decentralizing the organization and collection of the Urban Property and Land Tax from the provincial governments to the medium sized cities of Argentina, to increase the revenues, improve the local government accountability, and create larger fiscal space for local management of urban development.
As a first step of the analysis we reviewed the extensive literature on international and Latin-American cases on decentralization of this tax to develop a framework against which to compare the Argentine situation and the proceedings of a proposal for reform. Our second step was to elaborate an ex-ante simulation model for medium sized cities of Argentina to estimate the potential benefits of decentralization comparing the revenues collected by the provincial government under a centralized organization and the ones collected by the municipal governments. We also explored new sources to widen the scope of the Property Tax.
Our results showed that there is space to increase the collection of this tax by improving its administration. In practical terms, the collection of the Property Tax in Argentina is very responsive to increases in: the property valuation, the rate of the tax, and the rate of effective collection. Gains for reduction in the informal tenure are less important since they affect low value properties.
In a scenario where tax reform is urgently needed, the decentralization of the Urban Property Tax could be considered as a good first step in the right direction. However, we also pointed out that the Provinces that potentially concentrate most of the gains will need to implement institutional changes to proceed with the Property Tax decentralization.