Do Commercial Property Taxes Affect Business Microlocation Decisions?

Abstract

ABSTRACT Do commercial property taxes affect business microlocation decisions? Using precise geolocations for 2.8 million U.S. establishments, we employ a spatial discontinuity density design, comparing for-profit establishments to nonprofits, which are generally exempt from property taxes. Relative to nonprofit establishments, for-profit establishments disproportionately locate on the low-tax side of county borders. This effect strengthens with the size of the tax differential. At borders with differentials in the top decile (quartile), we estimate a 6–7 (5–6) percent shift in establishment location toward the low-tax side over a 10-km band. Businesses move from as far as 10 km away on the high-tax side but concentrate within 1 km on the low-tax side. Firms trade off tax savings with customer access: low-foot-traffic establishments respond more to tax differentials than high-foot-traffic ones. A survey of U.S. mayors finds that perceptions of property taxes’ importance for business location rise with cross-border tax differentials. Data Availability: Survey data are available upon request. All other data were obtained from publicly and commercially available sources described in the manuscript. JEL Classifications: H25; H71; H73; R32.