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CEP discussion paper
Assessing the Effects of Local Taxation Using Microgeographic Data
Gilles Duranton, Laurent Gobillon and Henry G. Overman
August 2006
Paper No' CEPDP0748:
Full Paper (pdf)

JEL Classification: H22; H71; R38

Tags: local taxation; spatial differencing; borders

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.