Three essays in applied microeconomics

This thesis consists of three essays on applied microeconomics, each investigating the effects of different policies on market outcomes. While distinct, these essays share a focus on externalities arising from policy interventions, which may distort their intended effects. Although spillover effects are ubiquitous in economic analysis, estimating causal effects in their presence remains an empirical challenge. Nevertheless, addressing these effects is crucial, as neglecting to account for the interaction between economically or geographically close units results not only in incomplete but also potentially incorrect evaluations of the policies’ economic impacts. The first chapter presents evidence of market externalities of tax evasion: firms’ tax non-compliance distorts their competitors’ outcomes. Using novel administrative data on the universe of Italian firms, the paper develops a tax evasion proxy as the fraction of individual firms who manipulate their revenue to meet eligibility criteria for preferential tax regimes. The empirical approach uses policy-induced changes in tax notches’ size to predict the fraction of non-compliant firms in each market. The paper finds that non-compliant firms cause significant revenue and productivity losses for their competitors, who then pass on some of this burden to their workers. This unfair competition harms aggregate productivity, partly due to a worsening in allocative efficiency. These findings show that cracking down on tax evasion not only increases tax revenue and promotes tax fairness, but also enhances market efficiency by leveling the playing field. The second chapter studies the labor market spillovers of the opening of a large oil extracting facility in a peripheral area of Southern Italy, focusing on the time when the physical investment was made. Using administrative data covering the universe of non-farm businesses in a difference-in-differences design, the paper finds positive effects on firm-level employment and positive, albeit smaller, effects on wages per employee. Employment gains are geographically localized and are concentrated in the upstream industries and among the largest firms. Using municipal-level data covering the entire local economy, the analysis reveals that the effect on total employment rate is positive but small. The third chapter evaluates the effects of a prominent European urban regeneration policy on Italian cities. The paper integrates administrative, census and geographic data at the sub-municipal level and a difference-in-differences design allowing for dynamic heterogeneous treatment effects and potential spillovers to consistently identify the direct effects of the policy on treated areas and the indirect effects on their neighbors. The findings indicate that failing to account for the presence of spillover biases the estimates. Overall, the policy had a positive impact on both the treated areas and on their neighbors’ economies.