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The effect of local taxes on firm performance: Evidence from geo‐referenced data

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  • Federico Belotti
  • Edoardo Di Porto
  • Gianluca Santoni

Abstract

This paper investigates the effect of local property tax for businesses on firm performance by using a panel of Italian manufacturing firms. To identify this effect, we implement a pairwise spatial‐differenced estimator and exploit the exogenous variation in local property tax rates caused by the political alignment of local and central governments. We find that business property taxation has a sizeable negative impact on equipment, the more volatile part of tangible assets, employment, and value‐added. We interpret these results as evidence of a distortionary mechanism. When heavy equipment are included in the business property tax base, as was the case in Italy during our estimation period, business property taxation depresses investment and induces firms to also reduce output and downsize.

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  • Federico Belotti & Edoardo Di Porto & Gianluca Santoni, 2021. "The effect of local taxes on firm performance: Evidence from geo‐referenced data," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 492-510, March.
    • Handle: RePEc:bla:jregsc:v:61:y:2021:i:2:p:492-510
    DOI: 10.1111/jors.12518
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    Cited by:

    1. Federico Belotti & Edoardo Di Porto & Gianluca Santoni, 2018. "Spatial Differencing: Estimation and Inference," CESifo Economic Studies, CESifo Group, vol. 64(2), pages 241-254.
    2. Edoardo Di Porto & Enrica Maria Martino & Henry Ohlsson, 2021. "Avoiding taxes by transfers within the family," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 1-23, February.
    3. Kumar, Anil & Liang, Che-Yuan, 2020. "Estimating taxable income responses with elasticity heterogeneity," Journal of Public Economics, Elsevier, vol. 188(C).
    4. Quentin David & Jean‐Benoit Pilet & Gilles Van Hamme, 2018. "Scale Matters in Contextual Analysis of Extreme Right Voting and Political Attitudes," Kyklos, Wiley Blackwell, vol. 71(4), pages 509-536, November.
    5. Tobias Laun & Johanna Wallenius, 2021. "Having It All? Employment, Earnings, and Children," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(1), pages 353-381, January.
    6. Ando, Michihito & Dahlberg, Matz & Engström, Gustav, 2017. "The risks of nuclear disaster and its impact on housing prices," Economics Letters, Elsevier, vol. 154(C), pages 13-16.

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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