Financing Urban Government in Transition Countries: Assessment Uniformity and the Property Tax

Abstract

The area-based property tax has been gaining influence in developing and transitional countries around the world. While an area-based property tax is advocated for its simplicity and transparency, it is often criticized as being unfair because assessed values upon which property tax liabilities are based are not related to market values. We present a case study in Lithuania that explores the uniformity of assessments, and thus the implications for fairness of the distribution of property tax liabilities across properties, for an area-based tax as opposed to an ad valorem property tax. The findings suggest that, in Lithuania, assessments are more uniform, and the distribution of property tax liabilities across properties are more fair, for detached housing under the area-based assessment than under the market-based assessment; alternatively, uniformity and fairness of the distribution of tax liabilities for flats are better under market-based than area-based assessment.