Municipal tax incentives and solar PV adoption: Causal evidence from Catalonia

Abstract

This paper estimates the causal impact of municipal property tax exemptions on the adoption of solar photovoltaic (PV) systems in Catalonia. Using a balanced monthly panel of municipalities from 2015 to 2022, we employ a difference-in-differences (DiD) framework with staggered policy implementation. The exemption increased installed PV capacity by 36% and led to roughly one additional installation per treated municipality per month. Focusing on residential installations, we find that 80% of the tax exempt installations would have occurred even without the policy, implying an implicit abatement cost of €142 per tonne of CO2. Heterogeneity analysis shows limited variation across structural and socioeconomic contexts. Overall, the policy was moderately effective but only partially efficient, suggesting that more targeted design could enhance its cost-effectiveness.