Policy evaluation with advanced analytics: non-domestic property tax reliefs

Matikonis, Karolis (2018) Policy evaluation with advanced analytics: non-domestic property tax reliefs. Doctoral thesis (PhD), Manchester Metropolitan University.

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Abstract

The Small Business Rate Relief (SBRR) reduces the business rates payable by firms occupying lower cost premises. This thesis evaluates the success of the SBRR with regards to productivity and survival rates using longitudinal datasets from the Office for National Statistics. Simultaneously, the thesis adapts and adopts Duranton’s et al. (2011) theoretical framework on non-domestic UK property taxation. The framework argues that although in the short-term SBRR is likely to reduce deaths during a recession, it decreases total factor productivity (TFP) as well. However, in the medium term, SBRR may even be overcapitalised into rents, meaning that higher rents may fully offset the business rate reliefs. No long-term effects are identified. The framework argues that the degree of these effects should depend on the market supply constraints and spillovers such as concentration (Marshall-Arrow-Romer, 1890), competition (Porter, 1990) and diversity (Jacob, 1969). In order to capture the complex clustering of effects within and across firms, the standard econometric approaches are supplemented with the recently developed non-parametric Random Effects Expectation Maximisation Decision Tree algorithm for productivity analysis and the Survival Tree algorithm for interval-censored survival estimation. As a result, the complex interaction and clustering of hierarchical effects are inferred from the data. This empirical approach is based on extensive micro data for all UK firms from which coarsened matching across a wide range of characteristics is employed to create a representative sample. Contrary to policy expectations and widespread rhetorics, the findings show that property tax reductions are associated with consistently lower productivity and only a very marginal initial improvement in survival. The thesis also finds indications that market concentration towards major players is related to the extent of SBRR capitalisation into property prices, and that output diversity is associated with higher TFP.