The effect of local taxes on firm performance: Evidence from geo?referenced data

This paper investigates the effect of local property tax for businesses on firm performance by using a panel Italian manufacturing firms. To identify this effect, we implement pairwise spatial-differenced estimator and exploit exogenous variation in rates caused political alignment central governments. We find that business taxation has sizeable negative impact equipment, more volatile part tangible assets, employment, value-added. interpret these results as evidence distortionary mechanism. When heavy equipment are included base, was case Italy during our estimation period, depresses investment induces firms to also reduce output downsize.