H71 - State and Local Taxation, Subsidies, and RevenueReturn

The relatively low property tax in the Czech Republic is determined partly by the respective law and partly by coefficients set by municipalities. Only some municipalities take advantage of their power to change these coefficients; this is partly due to insufficient information about the possibilities and their impacts. The objective of this article is to quantify the impacts of the current situation as well as of selected changes and thus provide a basis for public discussion about the design and rate of property tax in the Czech Republic. In the empirical part, based on detailed anonymised data from tax returns, we focus on the capital city Prague. Prague provides an interesting case to study because of its diversity of property, its size and the extent of its possibilities for altering its property tax. We contribute to the so far limited empirical research on property tax in the Czech Republic by quantifying the impact of property tax on various groups of tax payers, the time development of property tax revenues for municipalities, and the impact of changes in the design of property tax.

The objectives of the paper are to compare the development of the legally granted municipal autonomy regarding the property tax in the Czech Republic and Slovakia since 1993 and its real implementation in 2011 and to evaluate the impacts of the municipal autonomy regulation on municipal behaviour. The comparison is based on a legal analysis of the versions of the law on property tax pertaining in the individual years 1993-2012 in both the countries and a comparison of the tax rates actually implemented in 2011 in the Czech and Slovak district towns. Czech municipalities can influence the tax rates through three types of coefficients which enforce quite an uniform approach to the entire territory of the municipality as well as different types of property. In contrast, the autonomy of Slovak municipalities has increased gradually and, since the introduction of the new law in 2005, it has seen only minimal limitations. The average tax rates are higher in Slovakia with the exception of residential houses and apartments. The highest differences appear in the case of property used for industry and other entrepreneurial activities. The results obtained suggest that in both the systems municipalities attempt to shift the tax burden from the residents to other entities and that the link between the property tax and the local service benefits is weakened.