Property taxation and economic development: Lessons from Rwanda and Ethiopia

Authors: Tom Goodfellow
Publisher: SPERI
Date: September 2016

Abstract:

Political Economy Brief 4

This brief charts the rapid urbanisation that has taken place in recent decades in Rwanda and Ethiopia, two of the world’s poorest, but most rapidly urbanising, countries, and the attempts in both countries to introduce effective property taxation reforms. It explores the range of factors in both countries that have led to the taxation reforms achieving poor results to date.

To investigate property taxation, the report’s author Dr Tom Goodfellow spent time in Rwanda and Ethiopia and interviewed local and national government officials, investors and property developers.

It argues that the rapid urbanisation and property boom experienced in the capital cities of Kigali and Addis Ababa, and the concentration of capital in urban property, underscores the need for developing countries to introduce effective property taxation and mechanisms to capture rising land and property values. The report shows how by the time concerted efforts to reform property taxation started to materialise in both Rwanda and Ethiopia, a powerful class of wealthy elites concerned with protecting profits and asset values held disproportionate influence and were able to obstruct and water down reforms.

As more cities in Africa and throughout the developing world urbanise, the efforts to introduce property taxation in Rwanda and Ethiopia should be studied by policymakers in other rapidly urbanising countries and by international development policymakers concerned with securing progress towards poverty reduction and avoiding inequitable economic growth in the developing world.