Reform toward ad valorem property tax in transition economies :fiscal and land use benefits

The current move toward ad valorem property tax in transition economies responds first to a fiscal objective: it is one answer to the growing need for independent resources for decentralized authorities. This note examines under which conditions this fiscal objective can be best reached, integrating social impact considerations and the need to face administrative and technical constraints. In addition, an ad valorem property tax can also help increase land use efficiency, a crucial need in transition economies, and the note goes on to examine under which conditions this land use goal can be best pursued, while remaining compatible with the core fiscal objective of the tax. The note concludes that the introduction of an ad valorem property tax can serve both fiscal and land use objectives in transition economies, provided that the reform is carefully designed to address the technical, administrative and political challenges, that a consistent articulation is found with other regulations and reform of real estate markets and that adequate tax characteristics are adopted.