joint with Annalisa Scognamiglio

This paper estimates the impact of property taxes on property values. The unexpected introduction of a new fiscal regime on property taxes in 2012 adopted by the Italian government in December 2011 within the austerity plan to face the sovereign debt crisis ("Manovra Salva Italia") provides an ideal empirical setting. We exploit the crosssectional variation in the tax rates set by each Italian municipality as the intensity of the treatment. We address the endogeneity problem by instrumenting the tax rate on primary residences with the timing of the elections. As showed by Alesina and Paradisi (2014) municipalities that did not have elections in 2013 set a tax rate about 0.1 percentage points higher than the others. Our results show that in those municipalities there has been a reduction in average property values about 6% higher the others. The effect is attributable to the relative higher property tax rate and provide evidence in favor of the capitalization hypothesis on property values.

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