Adjustment Costs and Factor Demand: New Evidence from Firms' Real Estate. Issue 633 (29th July 2020)

• Record Type: Journal Article
• Authors: Bergeaud, Antonin; Ray, Simon
• Is Part Of: Economic journal. Volume 131:Issue 633(2021)
• Page Start: 70
• Page End: 100
• Publication Date: 2020-07-29
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1093/ej/ueaa094
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: We study corporate real estate frictions and their effect on firm dynamics and labour demand. We build and simulate a general equilibrium model with heterogeneous firms that predicts the response of firms to a productivity shock in the presence of fixed adjustment costs on real estate. Using a large firm-level database merged with local real estate prices, we then exploit variations in the tax on capital gains to document a causal effect of adjustment costs on firms' labour demand and derive new results on the causes and implications of firms' local relocation.