Evasión y agrupamiento en el impuesto territorial : evidencia de Chile

Abstract

This is the first paper to estimate and model property tax evasion in Chile. Property size as reported to Chile’s national tax authority by homeowners is compared with estimates of property size obtained from a private appraisal company in order to produce estimates of underreporting. These estimates are rationalized via an optimal tax evasion model where a tax notch at 140 square meters (after which the tax rate on properties doubles) plays a central role. The model parameters are estimated using method of moments. Moments that capture bunching for both actual and reported square meters at the tax notch are consequential for the estimation. Finally, the model is used to analyze the implications of various changes to the property tax rate, particularly moving to a regime with no tax notch. A regime with no tax notch results in a significant reduction in tax evasion.1 In 2019, Chile’s national broadcaster aired an investigation exposing the prevalence of property tax evasion among the country’s high-income groups, including serving politicians. The broadcast, using administrative and anecdotal evidence, described the different ways in which individuals manage to evade property tax, including not registering the property with Chile’s national tax authority (known by its Spanish acronym, SII), declaring a false use of the property (i.e., agricultural rather than residential), or underreporting the area of buildings by not regularizing new extensions to the property. Property tax evasion is particularly important because it is a progressive tax; it consists of three increasing tax rates for three brackets of property value. Moreover, property tax is the main source of income for municipalities, amounting to nearly 38% of municipalities’ income, particularly for lower-income administrative areas2 . One Chilean law known as DFL-2 (1959) aims to support social and affordable housing by reducing by half the rate of tax on properties of 140 square meters or less3 . This law creates a tax notch—that is, a discontinuity in the average tax rate—and as a result it creates an incentive to underreport the size of buildings. This poses the question, how does the tax notch defined by the DFL-2 impact the behavior of households regarding the real and reported size of their properties? In this paper the focus is on evasion that is achieved by underreporting the size of the property. An optimal tax evasion model is proposed that incorporates a discontinuity in the tax rate with close form solutions. A novel database allows the measurement of evasion by size of the property through access to the official SII data that records reported size and new data from a private appraisal company that provides an estimation of the actual sizes of properties.