(A. Bragança, A. Fonseca, D. Moura, B. Sampaio, A. Sant’Anna, and D. Szerman)
September 2025 submitted
This paper evaluates a nationwide reform in Brazil that offered municipalities the possibility to administer rural property taxes in exchange for receiving a higher share of revenues. Using over 120 million tax returns and a difference-in-differences design exploiting implementation failures, we find that decentralization increased tax revenue by over 15% within five years, largely via higher reported land values. Satellite imagery shows no distortive changes in land use. A cost-benefit exercise using administrative cost data indicates that the reform had large returns. Taken together, these results indicated that administrative decentralization—paired with incentive-compatible transfers and central oversight can improve tax enforcement with none or little efficiency losses.