Property Tax Collection in Cartagena, 1984-2010

Abstract

We examine the determinants of property tax collection in Cartagena, Colombia, between 1984 and 2010. This tax accounts for 33% of the District’s current income; with the industry and commerce tax it is the city’s main source of income. At the macro level, we study the impact of fiscal decentralization policies launched in the eighties and deepened in the second half of the nineties, and of the trade liberalization model introduced also in the nineties. Other macro variables considered are inflation and income inequality. At the local level, we examine the impact of tax reforms, the growth of construction and population, and also of efforts to expand the collection of other taxes and of taxpayers’ responses to changes in social expenditures. We find that property tax collection reflects the city’s economic conditions, due to the cycles of construction and the distribution of income, as well as the impact of inflation. It is possible to raise tax collection if taxpayers perceive that social expenditure is rising. If tax collection is strengthened two serious problems may be solved: the substitution effect in own sources of income (particularly in the tax on industry and commerce) and fiscal laziness. In the case of the impact of inflation and inequality of incomes, it is evident that the most effective fiscal policy is that which reduces poverty and vulnerability, and also raises investment and institutional efficiency in tax collection.