Collateral Value and Entrepreneurship: Evidence from a Property Tax Reform
31 Pages Posted: 23 Mar 2020
Date Written: December 3, 2019
We study the role of property taxes on entrepreneurial activity using a quasi-natural experiment, which unexpectedly reduced the upper bound of the Portuguese property tax rate for urban properties in 2008. Using a difference-in-differences approach, we find that treated municipalities (i.e., municipalities that had a property tax rate above the new upper bound) experienced higher entry rates in the manufacturing sector vis-a-vis control municipalities (i.e., municipalities that had a property tax rate at or below the new upper bound). Taking advantage of firm-level data, we show that start-ups created as a response to the decrease in property taxes in treated municipalities use more debt, invest more, and are more likely to survive.
Keywords: Entrepreneurship, Property taxes, Real estate collateral, Savings
JEL Classification: L26, H20, R30
Suggested Citation: Suggested Citation