The Real Effects of Land Use Regulation: Quasi-Experimental Evidence From a Discontinuous Policy Variation

50 Pages Posted: 28 May 2020

See all articles by Marco Fregoni

Marco Fregoni

Bank of Italy

Marco Leonardi

Università degli Studi di Milano; IZA Institute of Labor Economics

Sauro Mocetti

Bank of Italy

Date Written: February 12, 2020

Abstract

We provide quasi-experimental evidence of the effects of a relaxation of land use constraints on local economic activity. We exploit the fact that in 1999 the central government imposed fiscal rules on municipal governments and in 2001 it relaxed them for municipalities with less than 5,000 inhabitants. First, we show that municipalities rely on the urbanization revenues that they collect from issuing building permits to avoid fiscal distress and to finance current expenditure. The rise of building permits is concentrated in the non-residential market and is stronger after 2003, when urban revenues were allowed to pay for municipalities’ current expenditures. Second, we exploit this de facto reduction of firms’ entry barriers to examine downstream effects. We find a positive impact on employment growth and firms’ entry that is concentrated in non-tradable sectors.

Keywords: fiscal rules, urbanization revenues, land use regulation, building permits, firms’ entry, employment

JEL Classification: D73, H72, R52, R31, R33

Suggested Citation

Fregoni, Marco and Leonardi, Marco and Mocetti, Sauro, The Real Effects of Land Use Regulation: Quasi-Experimental Evidence From a Discontinuous Policy Variation (February 12, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1261, Available at SSRN: https://ssrn.com/abstract=3612806 or http://dx.doi.org/10.2139/ssrn.3612806

Marco Fregoni

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marco Leonardi

Università degli Studi di Milano ( email )

14 Via Vetere
20122 Milano
Italy
+39 02 58100384 (Phone)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Sauro Mocetti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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