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Do Special Transfers to Incentivize Local Tax Revenue Effort Work?

Author

Listed:
  • Canavire-Bacarreza, Gustavo
  • Cansino Montanez, Kenyi Alain
  • Castro-Peñarrieta, Luis
  • Martínez-Vázquez, Jorge
  • Beverinotti, Javier

Abstract

Many decentralized countries struggle with low levels of subnational tax effort. As a remedy for this situation, specific-purpose incentive schemes designed for own revenue mobilization at the subnational level can be simple, efficient, and cost-effective tools. We examine the effects of an incentive transfer program established in 2010 in Peru aimed at increasing property tax revenue at the subnational level. Specifically, Peruvian districts would receive a monetary transfer if they increased their property tax collection above a certain threshold in the previous year, thereby raising their own revenues. Using quasi-experimental methods, we find that the property tax revenue of districts that (actively) participated in the program significantly increased over the following decade. Our results are robust to the choice of estimator and a series of additional tests.

Suggested Citation

  • Canavire-Bacarreza, Gustavo & Cansino Montanez, Kenyi Alain & Castro-Peñarrieta, Luis & Martínez-Vázquez, Jorge & Beverinotti, Javier, 2026. "Do Special Transfers to Incentivize Local Tax Revenue Effort Work?," IDB Publications (Working Papers) 14569, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:14569
    DOI: http://dx.doi.org/10.18235/0013978
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    Keywords

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    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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