Prospects for Agricultural Land Taxation in Developing Countries

Countries that collect tax revenue from the agricultural sector through export taxes, marketing boards, and overvalued domestic currencies are often loath to abandon these distorting policies because of the consequent revenue loss. One potential alternative is to replace these distortionary taxes with a land tax, which would not depress output prices or discourage foreign exchange earnings and which could be, in theory, a highly progressive tax. The advantages and disadvantages of a land tax are examined theoretically and using the specific experiences of Bangladesh, Argentina, and Uruguay. It is concluded that the land tax is not necessarily more efficient than other types of taxes; the Achilles Heel of land taxation is administration; progressive tax rates based on land holdings are nearly impossible to administer; land taxes have been ineffective at promoting nonrevenue goals; political support by farmers is necessary to implement the tax; and the most promising prospects for a moderate land tax system are in financing local, rather than central, government expenditures.