The Effect of Local Taxes on Firm Performance: Evidence from Geo-Referenced Data

37 Pages Posted: 15 Apr 2016

See all articles by Federico Belotti

Federico Belotti

University of Rome Tor Vergata - Department of Economics and Finance; University of Rome, Tor Vergata - Centre for Economics and International Studies (CEIS)

Edoardo Di Porto

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Gianluca Santoni

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: April 13, 2016

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.

Keywords: Local taxation, endogeneity, spatial differencing, two-way clustering

JEL Classification: H22, H71, R38

Suggested Citation

Belotti, Federico and Di Porto, Edoardo and Santoni, Gianluca, The Effect of Local Taxes on Firm Performance: Evidence from Geo-Referenced Data (April 13, 2016). CEIS Working Paper No. 377, Available at SSRN: https://ssrn.com/abstract=2764349 or http://dx.doi.org/10.2139/ssrn.2764349

Federico Belotti (Contact Author)

University of Rome Tor Vergata - Department of Economics and Finance

Via Columbia 2
Rome, RM 00133
Italy

University of Rome, Tor Vergata - Centre for Economics and International Studies (CEIS) ( email )

Via Columbia, 2
Rome, RM 00133
Italy

Edoardo Di Porto

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Gianluca Santoni

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
France

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