Property Tax Collection in Mexico: An Analysis of Its Economic Determinants in the Period 1969-2010

Abstract

This article analyzes the factors that account for the differences among states in collecting property tax in Mexico during the 1969-2010 period. It focuses on some variables that the literature has identified as determinants of tax collection performance, emphasizing the substi-tution effect hypothesis which asserts that local governments reduce their taxation when they have access to alternate funding sources with fewer political costs. We also analyze the effect of two constitutional reforms to article 115 aimed at improving property tax collection. Based on an econometric model with panel data, our results show that only conditional transfers (from the Ramo 33) have a negative effect on local taxation, but revenue share transfers from the federal government dot no. The main obs- tacle that the property tax faces to improve its performance comes from rural areas for three reasons: the property value is lower, local governments have weaker administrative capacities to collect taxes, and the Mexican ejido has historically been exempted from paying property taxes. Finally, we show that the constitutional reforms were ineffective in improving tax-collection performance of municipalities.