Property Tax Collection of Sonora Municipalities: Does Border Location Make any Difference?

Abstract

Article 115 of the Mexican Constitution was modified to grant Mexican municipalities prerogatives in order to improve their financial position through own-source revenue collection. This reform made it possible for the municipalities in the same state to face a different institutional fiscal framework without contradicting the corresponding legal framework. This paper relates the institutional framework and the municipal geographic location to property tax collection. Mexican northern border municipalities have experienced higher economic and demographic growth compared with non-border municipalities. This has resulted in a higher demand for public services and infrastructure. In the face of this pressure, and given that they are allowed to modify their institutional framework, the central hypothesis in this article is to test whether the border effect helps to explain the differences in property tax revenue across municipalities, and if that effect results in higher property tax collection. These hypotheses are analyzed for the municipalities of the Mexican state of Sonora. We estimate a number of econometric specifications using a panel of annual data (2000–2005) for the 72 municipalities of Sonora. We find evidence that both institutional differences, and the identification of the northern border municipalities of Sonora help to explain variations in revenue from property tax.

Acknowledgments

An earlier version of this paper was presented in the 2010 Association for Borderland Studies conference (Panel 19 Economic and Fiscal Impact on Funding Management in Border Regions), and in the 2010 Southern Economic Association conference Session 04M Tax Policy). Comments of participants in those panels are appreciated.

We thank Ruben Araiza for helping us to obtain the data on property tax collection of the Sonora's municipalities. We also acknowledge the comments of two anonymous referees that improved the paper. The usual disclaimer applies.

Funding

Financial support from the ITESM Research Chair Desarrollo Económico y Social is acknowledged.

Notes

1 Guillén and Ziccardi (2004: 25–29) review the municipalities in the Mexican Constitution. Santana and Sedas (1999), and Santana (2000) explain the 1999 Constitutional reform of Article 115.

2 For a more complete description of the characteristics of the state of Sonora see http://www.nationsencyclopedia.com/mexico/Michoac-n-Zacatecas/Sonora.html. For a recent statistical and geographical perspective of the State of Sonora see http://www.inegi.org.mx/est/contenidos/espanol/sistemas/ perspectivas/perspectiva-son.pdf. For maps to locate the state of Sonora see http://www.bing.com/images/search?q= map%2c+state+of+sonora+mexico&qpvt=map%2c+state+of+sonora+mexico&FORM=IGRE

3 Own calculations based on INEGI (2007b; 2005).

4 For more about the Mexican fiscal federalism, and the system of grants and its evolution see Arellano (1996), Rodríguez (1997), Courchene and Díaz-Cayeros (2000), SEGOB (2007), and SHCP (2007).

5 For a more detailed exposition of the different models, see Ibarra and Sotres (2009).

6 In www.conapo.gob.mx

7 Decreto por el que se Declara Reformado y Adicionado el Artículo 115 de la Constitución Política de los Estados Unidos Mexicanos. Diario Oficial de la Federación, December 23, 1999.