Measuring Fiscal Effort on Revenues Based on Real Estate Value in Brazilian Municipalities: Programs to Increase It

Abstract

To what extent could greater municipal fiscal effort on the real estate property and transfer taxes (IPTU and ITBI) and greater use of betterment levies help to close the financing gap for infrastructure and social programs? To address this question, we develop a Fiscal Effort Index (FEI) that “controls for” the effects of fiscal capacity indicators by calibrating a model with 2010 data from Brazilian municipalities with 50,000 or more inhabitants. We then simulate total potential revenue using different fiscal effort scenarios and analyze the correlations of this index with socioeconomic indicators. Finally, we discuss cases where technical assistance and financial incentives (Parana and Campo Grande, MS) have increased municipal fiscal effort. Municipalities ranking the top quartile showed FEIs 48% or more higher than the benchmarks, suggesting room for improvement for municipalities with lower fiscal effort.