Assessing the Effects of Local Taxation using Microgeographic Data

We study the impact of local taxation on the locationand growth of firms. Our empirical methodology pairs establishmentsacross jurisdictional boundaries to estimate the impactof taxation. Our approach improves on existing work as it correctsfor unobserved establishment heterogeneity, for unobservedtimevaryingsitespecificeffects, and for the endogeneity of localtaxation. Applied to data for English manufacturing establishments,we find that local taxation has a negative impact on employmentgrowth, but no effect on entry.