(Re)understanding the relationship between fiscal decentralization and property tax revenue: insights from developing and developed countries

Several countries over the world have experimented fiscal decentralization policies to enhance the autonomy of their respective local governments. These policies could improve tax revenue levels and, consequently, improve public service delivery. In this vein, the present study revisits the impact of fiscal decentralization (FD) on property tax revenue collection in a sample of 42 countries over the period 2005-2019. Using fixed effects estimations, we find a strong positive effect of fiscal decentralization on property tax revenues. Moreover, a higher level of democracy reinforces this positive relationship. However, we also find that higher levels of corruption can negate the beneficial effects of fiscal decentralization on property tax revenue. Furthermore, using quantile regression, the study shows that countries with property tax revenue above the median are more likely to benefit from fiscal decentralization than those below the median. Finally, our findings suggest that strengthening fiscal decentralization can enhance property tax revenue collection in both developed and developing countries. The success of such policies depends on implementing complementary measures tailored to each country's initial level of property tax revenue. Specifically, fiscal decentralization policies are unlikely to be effective unless they account for these initial conditions.