both in magnitude and significance, especially for “log GDP” and “property tax rate”. But the signs are the same for all the coefficients of both models. As discussed above, omitted variables are likely to be correlated with existing variables and based on the results from Hausman Tests, we are confident that the results from the Fixed Effects model provide more appropriate estimates.

# **VII. Conclusions**

To study the determinants of property tax revenue, we utilize OLS, Fixed Effects Models, and Random Effects Model to research on data from the United States, as well as Australia, Canada, Chile, and all the OECD countries. As expected, the Fixed Effects model fits the data better due to potential endogeneity issues, although they all return estimates as predicted.

The outcomes of our empirical analysis highlight the statistically significant impact on property tax collection of such determinants presenting a country’s state of development and its demographic, fiscal and property tax-specific characteristics. Specifically, the income level, the population density, and property tax rate correlate significantly and positively with property tax revenue, whereas federal transfers and household size have significantly negative impact. In our study, we are able to measure the impact of each of these factors and our research provides coefficients which can be used to make estimates of potential property tax revenues. Our empirical analysis draws in some relevant ‘food for thought’ pertinent to property taxation. First, design of fiscal transfer matters. As noted, property tax reforms typically go in conjunction with deepening fiscal decentralization. Any ‘soft budget constraints’ embedded in fiscal transfer schemes (equalization transfers as a case in point) can influence the fiscal policies of recipient states. Within this frame, lax behavior by states in mobilizing own revenue, most credibly through property tax, tends to be unintendedly compensated by the increased magnitude of equalization or other types of redistributive transfers.<sup>14</sup> The broader policy relevancy that we would venture to highlight here is: The efficiency in property taxation is directly related to or dependent upon the structure of the fiscal decentralization.

Second, economic and population growth exerts both push and pull effects on tax policy makers. As countries climb up the development ladder, the overall restructuring and rebalancing of the tax mix would inevitably pull in the vision for better designing and administering a property tax, an efficient tax. Higher population, combined with higher state income, would extend the base for property tax on the one hand, and push for revenue-enhancing measures to finance rising demand for public services, most visibly at local levels.

A third policy issue relevant to property taxation is emerging from demographic trends observed around the world; the one most pertinent to this research is the decline in household sizes around the globe.<sup>15</sup> Estimated trends indicate that in most countries the average household size has

> 14 See, for example, Vigneault (2007) and Smart (2007) for more discussion of the disincentives from soft budget constraints and distributive transfers.

> 15 Patterns and trends in household size and composition: Evidence from a United Nations dataset, United Nations, 2019.

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