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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 impact of business property taxation on firms' performance using a panel of italian manufacturing firms. To account for endogeneity in local taxation, we exploit a pairwise spatial differenced generalized method of moments estimator. As well as providing robust inference, we also improve on existing work by exploiting the exogenous variation in local taxes generated by the political alignment of each local government with the central one. We find that property taxation exerts a negative impact on firms' employment, capital and sales to such an extent as to significantly affect total factor productivity.

Suggested Citation

  • Federico Belotti & Edoardo di Porto & Gianluca Santoni, 2016. "The effect of local taxes on firm performance: evidence from geo referenced data," Working Papers 2016-03, CEPII research center.
    • Handle: RePEc:cii:cepidt:2016-03
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    References listed on IDEAS

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    Cited by:

    1. Federico Belotti & Edoardo Di Porto & Gianluca Santoni, 2018. "Spatial Differencing: Estimation and Inference," CESifo Economic Studies, CESifo, vol. 64(2), pages 241-254.

    More about this item

    Keywords

    local taxation; endogeneity; spatial differencing; two-way clustering;

    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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