Applied Economics Lunch Seminar

Du 15/09/2020 de 12:30 à 13:30

Salle R1.09, Campus Jourdan

KNEBELMANN Justine (Sciences Po)

The (Un)Hidden Wealth of the City: Property Taxation under Weak Enforcement in Senegal

Property taxes are in theory easy to enforce in their simplest form due to their tangible tax base, and are considered an equitable means to raise revenue in low-income countries. In spite of these features, African countries, where cities are growing at an unprecedented pace and need additional resources to fund local public goods, are raising only 2 percent of fiscal revenue in property taxes, against around 9 percent in OECD countries, and this figure is at 0.7 percent in Senegal. Focusing on Dakar, the capital city where real estate has been buoyant over past decades, I document the extent and nature of the property tax gap. Using both administrative and survey data, as well as satellite images for property valuation purposes, I estimate that less than 20 percent of property owners are in the tax net, and that only 10 percent of tax potential is being collected. I put this weak performance into historical perspective with novel data on the colonial period and show that fiscal pressure peaked in the 1930s, at twice today’s levels. Finally, using real estate values, I compare the observed distribution of the tax burden with the theoretical one under full compliance, and find that weak enforcement leads to a tax profile that is more regressive than what is provided for ‘on paper’: the share of liability being recovered and the effective tax rate decrease with property value. This reinforces the justification for reform and modernization. This paper is a preliminary study for an ongoing field experiment, in which a modernized property tax management program is introduced to address these challenges.