Fiscal Effort of Guatemalan Municipalities

Abstract

This paper examines the fiscal effort of Guatemalan municipalities with respect to their most important source of tax revenues, the Tax on Real Estate (Spanish acronym IUSI). Our results show that fiscal effort is low and far from its potential in the case of IUSI. Mainly, this situation is due to the undervaluation of property appraisals for three reasons: the high discount rate applied to property values; low capacity to undertake the valuation of real estate, so that self valuation without verification is a common practice, and poor registration of real estate property. From our analysis of available information we also conclude that the collection of IUSI has a very skewed spatial distribution: high concentration around the metropolitan area of the capital and poor performance in the rest of the country. There is ample space to increase IUSI collection through better registration of real estate property, improvement of valuation, some changes in existing regulations and improvement in tax administration.