Property tax: dealing spatially with economic, social, and political challenges

Abstract

This research was inserted in the context of urban inequality, which is revealed, in part, by the concentration of public goods and services in favored areas, in the detriment of less favored areas. Besides providing empirical evidence that confirms this understanding, this work explored alternatives to increase the progressivity of taxes. Thus, it aimed to apply a higher tax on those who benefit most from property appreciation and the welfare produced by such public goods and services. Therefore, this research goal was to create a mechanism to extract resources from favored areas, and to invest them as public goods and services in less favored areas. For this, variables related to public goods and services were selected (hierarchical cluster) and a Synthesis Variable of Public Goods and Services (VS-BSP) was created (principal component analysis). The results showed that less favored areas had 2.54 and 2.52 times less VS-BSP and income. With the new property tax rate, which considers tax progressivity and the proportion of the VS-BSP in households, it was possible to assign a 157% higher rate to favored areas. Estimations showed that this new rate may contribute to a 47% reduction in the differences in the supply of public goods and services between the most and least favored areas.

Keywords:
Urban inequality; Spatial patterns; Public goods and services; Property tax reform.