ECONOMIC ARGUMENTS IN FAVOUR OF PROPERTY TAX

Abstract

When considering arguments that speak in favour of the existence of property tax, one should not lose sight of the fact that property tax is, primarily, a fiscal instrument providing an influx of significant funds to budgets of local self-governments, therefore being of great importance in the context of fiscal decentralisation. Even though the fiscal function of property tax is a priority, we should not disregard its other functions: economic, social, political, administrative-technical, and other. This paper aims to make a detailed analysis of economic arguments that speak in favour of levying tax on property, as well as to point to solutions that can contribute to or hinder the fulfilment of tax property’s economic function. The research has shown that economic arguments speaking in favour of property tax primarily come down to the fact that property tax is, in comparison to other types of tax, less distortive and can encourage the productive use of real estate. However, the research has shown that in practice favourable performance of property tax is often lacking at the economic level. This commonly happens due to the tax policy creators envisioning various measures that aim to temper the unpopularity of property tax with taxpayers. Tax base that is not market value and tax reliefs for owner-occupied housing are the best confirmation of this phenomenon. Namely, setting non-fiscal, especially social goals is common for all countries, regardless of level of their development. The paper also assesses to what extent property tax in Serbia achieves its economic functions, and in that regard formulates appropriate de lege ferenda proposals. The author believes that the more realistic valuation of the tax base and subjecting second homes to higher tax rates would contribute to more efficient use of real estate.