Abstract

We analyze large-scale establishment-level data to evaluate how county-level commercial property taxes influence business location decisions. We find that the propensity to favor lower-taxed counties is increasing in the tax differential between adjacent counties, and is decreasing in the distance to the border. Specifically, a tax differential increase from the 50^th to the 90^th percentile boosts the likelihood of locating in the lower-tax area by about 10 percent. Using a counterfactual analysis that compares businesses to non-profits—less influenced by property taxes—we confirm that businesses are attracted from high-tax to low-tax counties. Establishments with less foot traffic are about twice as sensitive to property taxes as those with high foot traffic, where customer access tends to outweigh tax considerations. We validate the tenor of our finding with a survey of U.S. mayors. Finally, we find evidence suggesting that property and income tax avoidance may act as substitutes.

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• Keyword(s):
• accounting 121
• policy 24
• state and local tax 7

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