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Employment protection may affect both productivity and capital investment because higher adjustments costs hamper allocative efficiency and may therefore affect both the optimal capitallabor input mix and total factor productivity. To estimate the impact of dismissal costs on capital deepening and productivity we exploit a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for bigger firms. We provide evidence that the increase indoi:10.2139/ssrn.2467505 fatcat:4drh3mqjsbfxlom3x7tk6qpqda