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Do regional payroll tax reductions boost employment?

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  • 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.

Suggested Citation

  • Bennmarker, Helge & Mellander, Erik & Öckert, Björn, 2009. "Do regional payroll tax reductions boost employment?," Labour Economics, Elsevier, vol. 16(5), pages 480-489, October.
    • Handle: RePEc:eee:labeco:v:16:y:2009:i:5:p:480-489
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    More about this item

    Keywords

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

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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