The paper examines the real effects of changes in land use regulation. The analysis exploits two reforms implemented in the early 2000s, which prompted larger cities to release more building permits (i.e. to relax land use regulation) to finance current expenditure with urbanization revenues and pursue a balanced budget.
The stronger incentive to rely on urbanization revenues for budgetary reasons led the municipalities affected by the reform to issue more building permits, especially in the non-residential market. The resulting relaxation of land use regulation had a positive impact on employment and firm growth at the local level, particularly in the non-tradable sector.
