DP5856 Assessing the Effects of Local Taxation Using Microgeographic Data

Author(s): Gilles Duranton, Laurent Gobillon, Henry G Overman
Publication Date: September 2006
Keyword(s): borders, local taxation, regression discontinuity, spatial differencing
JEL(s): H22, H71, R38
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5856

We study the impact of local taxation on the location and growth of firms. Our empirical methodology pairs establishments across jurisdictional boundaries to estimate the impact of taxation. Our approach improves on existing work as it corrects for unobserved establishment heterogeneity, for unobserved time-varying site specific effects, and for the endogeneity of local taxation. Applied to data for English manufacturing establishments we find that local taxation has a negative impact on employment growth, but no effect on entry.