Although fiscal cadasters have long been a key and growth-enhancing element of state capacity (D’Arcy _et al._ 2024),<sup>1</sup> land and property taxation also provides the basis for the social contract between taxpayers and the state (Besley and Persson 2014). Even in fragile, low-income and conflict-affected settings, increased property tax collection triggered a large “participation dividend” by raising citizens’ political participation and improving their perception of government responsiveness to their concerns (Weigel 2020). Provision of public goods increased property tax payments even by those not affected in Argentina (Carrillo _et al._ 2017) with willingness to pay property taxes enhanced by better service delivery (Kresch et al. 2023).

Public goods, including transport infrastructure, are generally capitalized in land prices: For example, in mid-19th century Chicago, public provision of water and sewer access doubled property values, generating a total benefit about 60 times construction costs (Coury et al. 2021). <mark>In New York, infrastructure extension increased land prices by 8 percent, creating US$ 5.5 billion in property value, though less than one-third of the private value created was captured via higher property tax revenue, pointing to considerable unexploited potential from property taxes to allow governments to capture a greater share of the added value from such investment</mark> (Gupta _et al._ 2022).

Experimental evidence suggests that infrastructure improvements, in this case first-time asphalting of residential streets, will result in appreciation of local land values in an amount that is approximately equal to construction costs (Gonzalez-Navarro and Quintana-Domeque 2016). In Colombia, higher own tax revenue had a bigger impact on public good delivery than an equally sized increase in central government transfers while increasing accountability by local officials (Martínez 2023).

Land taxes are not only an effective way to finance local public goods, but also one of the least distortive ways of raising public revenue as land is immobile and land rents are a true scarcity rent (Schwerhoff, Edenhofer and Fleurbaey 2020).<sup>2</sup> In the standard urban model, a recurring local tax on land can finance the optimum amount of local public goods (Arnott and Stiglitz 1981). Property taxes can reduce wealth inequality without requiring distortive taxes on capital (Bonnet et al. 2021). If labor productivity in manufacturing is greater than that in agriculture and agricultural and manufactured goods are substitutes (or the economy is open to world trade), land taxes increase aggregate economic output (Kalkuhl and Edenhofer 2017).

Urban property taxes increase incentives to use land effectively (Oates and Schwab 1997) and discourage land speculation (Norregaard 2013), creating scope to reduce sprawl (Ermini and Santolini 2017; Song and

> 1 In Europe, increased capacity for tax collection was historically a key determinant of long-run economic growth (Dincecco and Katz 2016). 2 US evidence also shows that if housing supply is inelastic, land and property taxes are capitalized in land (Lutz 2015) or property values (Livy 2018) so that future owners are not affected (Hoj _et al._ 2018)—a finding supported for high-value properties in Sweden (Elinder and Persson 2017).

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