Highlights :

• This paper studies the effect of business property taxation on a wide range of firm-level outcomes, using a panel data of Italian manufacturing firms over the period 2001-2010.
• We exploit a pairwise spatial differenced generalized method of moments estimator along with the exogenous variation in local taxes generated by the political alignment of each local government with the central one.
• Our estimates show that property taxation exerts a negative and statistically significant impact on employment, capital, TFP and sales.
• Back-of-the-envelope calculations suggest that the observed average increase in business property taxation between two consecutive years (0.05 percentage points) induces contractions in employment and capital, by about 0.5 workers and 8150 euros, respectively.

 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 : H22, H71, R38


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