Climate risk exposure and corporate tax behaviour: Evidence from Italian SMEs

This thesis verifies whether a provincial precipitation anomaly is reflected in the tax burden of Italian small and medium-sized enterprises in the following financial year. The analysis combines the financial statements of 22,548 unlisted firms, observed between 2016 and 2022 for a total of 132,289 observations, with meteorological measures recorded on a regular grid and aggregated to the 107 Italian provinces. The estimation includes firm and year fixed effects, with standard errors clustered at province level. A shock equal to a standard deviation corresponds to an effective tax rate lower by 0.185 percentage points. Separating numerator and denominator of the rate, the movement is attributable to taxes and not to profitability. The response is stronger in the manufacturing sector and among more indebted firms: the first partition identifies the items on which the tax choice is exercised, the second the need for liquidity that motivates it. Finally, distinguishing the two directions of the anomaly, the ratio moves in dry years, while in wet years taxes and income fall together and the indicator records nothing. This reveals a limitation of the measure adopted, which is blind to the strategies that simultaneously compress taxable income and book income: the estimates should therefore be read as a lower bound on the overall response.