1 PREDICTING TAXPAYER BEHAVIOUR & COMPLIANCEPREDICTING TAXPAYER BEHAVIOUR & COMPLIANCE. AN ECONOMIC ANALYSIS OF JAMAICA’S PROPERTY TAX SYSTEM TINA BEALE- Ph.D. CANDIDATE, REAL ESTATE & PLANNING, UNIVERSITY OF READING PETER WYATT – PROFESSOR,

2 INTRODUCTION Property tax compliance in Jamaica has been low for the past 3 decades (Private Sector Working Group of Jamaica, 2012), but the reasons for this is unclear. The issue of low property tax compliance is not unique to Jamaica. Compliance rates are normally in the range of 50-60% (Thomas, 2015 in Eubanks, 2015) Unlike many other developing economies, she has a computerised land admin. system & conducts revaluation exercises on a 10 year cycle (Sjoquist, 2007).

3 AIM OF THE PRESENTATIONTo provide an insight into how the formal rules of Jamaica’s property tax system and land market are shaping: The property tax collector-taxpayer relationship; and Jamaica’s compliance equilibrium

4 TAX COMPLIANCE LITERATURE

5 LAND & PROPERTY TAX LITERATURE - 1FOCAL POINTS FINDINGS TAX ADMINISTRATION Legislative indulgences provided to taxpayers (Allen, 1936). Developing countries unable to properly administer the tax, insufficient resources and weak enforcement (Netzer, 2001; Bird & Slack, 2002). Different levels of enforcement applied to different types of taxpayers (Wynter, 2014) FAIRNESS & EQUITY Mixed results on tax fairness and equity (McCluskey et al., 1998). Depends largely on how tax rates/scales are applied.

6 LAND & PROPERTY TAX LITERATURE - 2FOCAL POINTS FINDINGS STABILITY OF TAX REVENUE Stable & progressive tax revenue. For eg. the property tax earned more income than other taxes (in the US) and increase steadily during the 2008 economic recession (Mikesell & Liu, 2013; Alm, 2013). COMPLIANCE Developed countries have high compliance rates (Mikesell & Liu, 2013; Alm et al., 2013). Low compliance rates in developing economies (McCluskey & Franzsen, 2001; Bird & Slack, 2002).

7 GAPS IN THE LITERATURE

8 THE ANALYTICAL FRAMEWORK

9 TENURE RIGHTS IN THE LAND MARKET-1

10 TENURE RIGHTS IN THE LAND MARKET-2

11 THE PROPERTY TAX SYSTEM - 1Source: Wynter (2014).

12 THE PROPERTY TAX SYSTEM - 2Organisational Units Issues/Problems Implications Taxpayer Identification Beneficiaries are without a legal or equitable interest in land Registration is voluntary Sustains family land tenure Less visible tax base Moral hazard/free riding by taxpayers. Assessment Regressive tax rate for properties in lowest value band Proportional tax rate for properties in middle value band Progressive tax rate for properties in highest value band Inequity in tax system

13 THE PROPERTY TAX SYSTEM - 3Organisational Units Issues/Problems Implications Service Production Ambiguous contractual rights between tax collector and service providers Rent-seeking behaviour Moral hazard problem/free riding by tax collector and his agents Enforcement & Collection More stringent measures rarely enforced/legislative indulgences. Acting ultra vires to law. Different levels of enforcement to different categories of taxpayers High costs of transacting Moral hazard/free riding by tax collector to reduce the costs of transacting

14 THE TAX COLLECTOR-TAXPAYER RELATIONSHIP

15 THE COMPLIANCE EQUILIBRIUMJamaica’s compliance equipoise consists of 2 opposing equilibriums with the following categories of taxpayers: Registered property owners with high levels of tax morale Beneficiaries who comply to secure their tenure Squatters who comply to assist their attempt at obtaining legal title Taxpayers with risky tenure who evade because they are less visible to the tax collector. Taxpayers with legal & equitable interests who evade because of weak enforcement & poor service provision.

16 CONCLUDING REMARKS - 1 The governance structures of the land market and tax system plays a pivotal role with shaping the interaction between the tax collector & taxpayer. The governance structures must facilitate repeated exchanged between the tax collector & taxpayer in order to achieve high compliance rates. The hierarchical structure of tenure rights is reinforced by high costs of land registration, which embeds the customary tenure in the tax base and results in visible and less visible sections of the base.

17 CONCLUDING REMARKS - 2 The tax collector-taxpayer relationship is positioned within a broader socio-economic setting where evasion is a low risk activity & the decision to comply extends beyond the price mechanism. The tax collector faces two issues- the problem of embeddedness in the land market & the free rider phenomenon

18 References - 1 Allen, H.K. (1936). The Collection of Real Property Taxes. Law and Contemporary Problems, 3(3), Allingham, M. & Sandmo, A. (1972). Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics, 1, (3-4), Alm, J. (2013). Measuring, Explaining and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies. Working Paper. Tulane Economics. Bird, R.M. and Slack, E. (2002). Land and Property Taxation: A Review. Retrieved at dPropertyTaxation.pdf. Clotfelter, C. (1983). Tax Evasion and Tax Rates: An Analysis of Individual Returns. Review of Economics and Statistics, 65(3),

19 References - 2 Eubanks, O. (2015 May 4) TAJ Says Collaboration Results In Increased Property Tax Collection. Jamaica Information Service. Retrieved from says-collaboration-results-increased-property-tax-collection/ Hindriks, J., Keen, M. and Muthoo, A. (1999). Corruption, extortion and evasion. Journal of Public Economics, 74, McCluskey, W.J., and Franzsen, R. (2001). Site Value Taxation in Selected Countries. Working paper. Cambridge, MA: Lincoln Institute of Land Policy.  McCluskey, W.J., Plimmer, F. and Connellan, O. (1998). Ad Valorem Property Tax: Issues of Fairness and Equity. Assessment Journal, 5(3), Mikesell, J. and Liu, C. (2013). Property tax stability: a tax system model of base and revenue dynamics through the Great Recession and beyond. Public Finance and Management, 13(4),

20 References - 3 Netzer, D. (2001). What Do We Need to Know about Land Value Taxation? American Journal of Economics & Sociology,60(5), DOI: / Private Sector Working Group of Jamaica. (2012). Submission of the Private Sector Working Group on Tax Reform to the Taxation Committee of Parliament. or%20Working%20Group%20to%20the%20Parliamentary%20Tax%20Committee%20 -%20final(1).pdf. Richter, R. (2007). The Market as Organisation. Journal of Institutional and Theoretical Economics, 163(3), Slemrod, J. (1989). Optimal taxation and tax systems. Retrieved from Slemrod, J. (2015). Tax Compliance and Enforcement: New Research and its Policy Implications. Working Draft. Retrieved from

21 References - 4 Torgler, B. (2003). Tax morale, rule governed behaviour and trust. Constitutional Political Economy, 14(2), Uslaner, E. (2010). Tax evasion, corruption and social contract in transition. In Alm, J., Martinez-Vasquez, J. and Torgler, B. (Eds.), Developing Alternative Frameworks for Explaining Tax Compliance (pp ). London and New York: Routledge. Wenzel, M. (2004). The social side of sanctions: persons and social norms as moderators of deterrence. Law and Human Behaviour, 28(5), Wynter, Carlene B. (2014). Property Tax Administration in Practice. A case study of the Portmore Municipality, Jamaica. Retrieved from Open Research Exeter Repository. Yitzhaki, S. (1974). A Note on Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics, 3(2),