Jarkko Harju, University of Tampere

“Real Effects of Firm Property Taxes”

Abstract

In many countries commercial property taxes are an important source of local revenue, yet little is known about their real effects on firms. Using Finnish administrative microdata that allow exact measurement of firm-level property tax payments, we exploit more than 1,000 municipal tax rate changes in an event study design to estimate the real effects of property taxation. Firm-level property tax payments respond nearly one-for-one to statutory rate changes, while the underlying tax base is relatively inelastic. We find that higher property taxes reduce total capital stock by lowering building investment. In contrast, firm scale measures show limited average responses, and entry effects are modest. These results suggest that commercial property taxes are revenue-efficient but distort firms’ capital composition.

Jarkko Harju is professor of economics at the University of Tampere and a part-time research professor in VATT's research group on social security, taxation and the distribution of income.

Jarkko focuses on studying the effects of taxes and social transfers on individual and firm behavior. Jarkko has recently studied the effects of value added tax rate changes on consumer prices and demand of goods and services. He has also examined the effects of payroll taxes on firm production decisions.

Jarkko’s research projects focus on understanding how taxes or regulation on input costs affect firm and owner-level decisions over the whole life cycle of firms. He also studies how social transfers and tax incentives affect the labor supply decisions of individuals. In addition, he examines the effects of different vehicle taxes on car fleet and the amount of driving.

You can read more about Jarkko Harju here

CEBI contact: Jakob Egholt Søgaard