We study the role of property taxes on entrepreneurial activity using a quasi-natural experiment, which unexpectedly reduced the upper bound of the Portuguese property tax rate for urban properties in 2008. Using a difference-indifferences approach, we find that treated municipalities (i.e., municipalities that had a property tax rate above the new upper bound) experienced higher entry rates in the manufacturing sector vis-à-vis control municipalities (i.e., municipalities that had a property tax rate at or below the new upper bound). Taking advantage of firm-level data, we show that start-ups created as a response to the decrease in property taxes in treated municipalities use more debt, invest more, and are more likely to survive.
