Association for Public Policy Analysis & Management

Neoclassical economics suggests that tax cuts can stimulate the economy through increased disposable incomes. Heeding this hypothesis, in 2004 the Los Angeles City Council passed ordinances to exempt 3/5^th of businesses from local taxes and cut taxes by up to 15% on the remainder to improve the business climate and create jobs. Empirical research suggests the effect of tax cuts is more ambiguous. Even if expected revenues and the cost of doing business in Los Angeles are comparable to a business' old location, a business may choose not move to Los Angeles because it anticipates decreased investment in local amenities, worse city services, and frictions incurred in relocation. Assuming an improved business climate would reflect on demand for commercial property in LA through increased property prices, we empirically evaluate this tax policy and provide industry-level estimates of city-level tax impacts. We use detailed panel data on all commercial property transactions in LA County to implement a difference-in-difference model on paired contiguous areas just within and outside of Los Angeles. Our results show no measurable impact on LA commercial property values and these findings are robust across different industries and specifications.