Local taxes and employment growth in territories: Empirical analysis on French municipalities

Local taxation and capital expenditure from local governments are important levers available to local authorities for promoting territorial development and economic growth. Local taxes are sometimes criticized for hampering firms' competitiveness that may lead to reduced job creation. This article analyzes whether, and to what extent, the changes in employment computed at the municipal level are determined by the local taxes that apply to businesses. To this end, it relies on French data structured by municipalities during the period 2011-2015, which begins when a profound reform of local business taxation took place. We estimate models explaining variations in employment by various local variables including the tax base, the rates of different local taxes and public investment spending. The dispersion of the explained variable leads us to apply the quantile regression technique which allows qualifying the results obtained according to the trajectory of the municipality. Our results show that the local tax system has little or no influence on the fluctuations of employment, but that the latter are sensitive to the capital expenditure of municipalities. Results do not support the claim that local taxes have a negative impact on employment. However, they partly confirm the thesis that taxes locally collected are used to achieve expenditures that are beneficial to all production units in a territory. The level and magnitude of the estimated coefficients depend on the trajectories of the municipalities. The robustness tests performed confirmed the main results even if property tax may have a negative effect in peripheral fringes of metropolitan areas.