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Do regional payroll tax reductions boost employment?

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Author Info

  • Bennmarker, Helge
  • Mellander, Erik
  • Öckert, Björn

Abstract

Using a Difference-in-Differences approach, we evaluate the effects of a 10 percentage point reduction in the payroll tax introduced in 2002 in northern Sweden. We find no employment effects among firms existing both before and after the reform, whereas the average wage bill per employee increases by about 0.25% per percentage point reduction in the tax rate. Extending the analysis to include entry and exit of firms, we find evidence of positive effects on the number of firms and a tendency to positive employment effects. Moreover, the wage incidence estimates become insignificant when we account for entry and exit of firms.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 16 (2009)
Issue (Month): 5 (October)
Pages: 480-489

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Handle: RePEc:eee:labeco:v:16:y:2009:i:5:p:480-489

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Web page: http://www.elsevier.com/locate/labeco

Related research

Keywords: Labour tax Labour demand Incidence Firm entry/exit Difference-in-Differences;

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References

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  1. Holmlund, Bertil, 1983. "Payroll Taxes and Wage Inflation: The Swedish Experiences," Working Paper Series 68, Research Institute of Industrial Economics.
  2. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers 194, Research Department of Statistics Norway.
  3. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August.
  4. Anderson, Patricia M. & Meyer, Bruce D., 2000. "The effects of the unemployment insurance payroll tax on wages, employment, claims and denials," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 81-106, October.
  5. Bingley, Paul & Lanot, Gauthier, 2002. "The incidence of income tax on wages and labour supply," Journal of Public Economics, Elsevier, vol. 83(2), pages 173-194, February.
  6. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July.
  7. Don Fullerton & Gilbert E. Metcalf, 2002. "Tax Incidence," NBER Working Papers 8829, National Bureau of Economic Research, Inc.
    • Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
  8. Ossi Korkeamäki & Roope Uusitalo, 2004. "Employment effects of a payroll tax cut – Evidence from a regional tax subsidy experiment," ERSA conference papers ersa04p350, European Regional Science Association.
  9. Bohm, Peter & Lind, Hans, 1993. "Policy evaluation quality : A quasi-experimental study of regional employment subsidies in Sweden," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 51-65, March.
  10. Anderson, Patricia M. & Meyer, Bruce D., 1997. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program," Journal of Public Economics, Elsevier, vol. 65(2), pages 119-145, August.
  11. Murphy, Kevin J., 2007. "The impact of unemployment insurance taxes on wages," Labour Economics, Elsevier, vol. 14(3), pages 457-484, June.
  12. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. "A tax on jobs" - experimental evidence
    by chris dillow in Stumbling and Mumbling on 2010-04-08 13:08:10
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Cited by:
  1. Egebark, Johan & Kaunitz, Niklas, 2013. "Do payroll tax cuts raise youth employment?," Working Paper Series 2013:27, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Tuomas Kosonen & Jarkko Harju, 2013. "The impact of tax incentives on the economic activity of entrepreneurs," Working Papers 42, Government Institute for Economic Research Finland (VATT).
  3. Moretti, Enrico, 2011. "Local Labor Markets," Handbook of Labor Economics, Elsevier.
  4. Stenkula, Mikael, 2009. "Taxation and Entrepreneurship in a Welfare State," Working Paper Series 800, Research Institute of Industrial Economics.
  5. Eliasson, Tove & Nordström Skans, Oskar, 2014. "Negotiated wage increases and the labor market outcomes of low-wage workers: evidence from the Swedish public sector," Working Paper Series 2014:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  6. Sachs, Andreas, 2010. "A Bayesian approach to determine the impact of institutions on the unemployment rate," ZEW Discussion Papers 10-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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