The economic footprint of short-term rentals on local businesses: evidence from Portugal

Abstract

We analyze how the proliferation of short-term rentals (STRs) affects firm survival, performance, and entry in two European cities with high STR density. Using administrative firm-level accounting data, a shift-share instrument, and an event-study design, we find that STR growth increases exit rates among underperforming firms, while surviving firms experience relative gains in sales and profits, with no effects on employment or investment. Corporate tax revenues accruing to the central government also rise, pointing to broader fiscal spillovers. STR expansion stimulates entrepreneurship, though new entrants face higher costs and lower initial profitability. These findings underscore the nuanced impacts of tourism-driven demand shocks on urban economic ecosystems.