Municipal Tax Incentives and Solar PV Adoption: Causal Evidence from Catalonia

Abstract

This paper evaluates the causal effect of municipal property tax exemptions on solar photovoltaic (PV) adoption in Catalonia. Using a balanced monthly panel of 398 municipalities from 2015 to 2022, we apply a covariate-adjusted difference-indifferences estimator under staggered adoption. The policy increased installed PV capacity by 34.4% and led to an average monthly increase of 0.79 installations per treated municipality. Heterogeneity analysis reveals stronger effects in municipalities characterised by low-rise housing and in rural areas with higher income levels, suggesting that both structural and socioeconomic conditions influence policy effectiveness. A back-of-the-envelope calculation for residential systems yields an implied abatement cost of €119 per tonne of avoided CO2, placing the policy within the range of other decentralised renewable energy support schemes. These findings underscore the potential of municipal fiscal instruments to accelerate residential decarbonisation and support climate policy goals.