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Payroll Taxes and the Labor Market: A Computable General Equilibrium Analysis

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  • Gustavo Hernández
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    Abstract

    This study uses a computable general equilibrium model to analyze the effects of eliminating Colombia’s parafiscal taxes, which finance social programs. In the model, these are substituted by alternative financing sources: VAT, indirect taxes or taxes on capital. The results show that elimination of parafiscal taxes produces a one percentage point decrease in the unemployment rate, as long as these are not substituted by other taxes. However, when other taxes are substituted for parafiscal taxes, there may not be any effect on the unemployment rate. This implies that eliminating parafiscal taxes does not produce the effects expected by a partial equilibrium analysis, that is, a significant reduction in the unemployment rate.

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    File URL: http://www.economia.puc.cl/docs/491hera.pdf
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    Bibliographic Info

    Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Latin American Journal of Economics-formerly Cuadernos de Economía.

    Volume (Year): 49 (2012)
    Issue (Month): 1 (May)
    Pages: 99-123

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    Handle: RePEc:ioe:cuadec:v:49:y:2012:i:1:p:99-123

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    Related research

    Keywords: Payroll taxes; applied general equilibrium; tax replacement;

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    References

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    1. Luis Eduardo Arango & Nataly Obando & Carlos Esteban Posada, 2010. "Sensibilidad de los salarios al desempleo regional en Colombia: nuevas estimaciones de la curva de salarios," BORRADORES DE ECONOMIA 006829, BANCO DE LA REPÚBLICA.
    2. Ana María Iregui B. & Ligia Alba Melo B. & María Teresa Ramírez G., . "Downward Wage Rigidities and Other Firms’ Responses to an Economic Slowdown: Evidence from a Survey of Colombian Firms," Borradores de Economia 612, Banco de la Republica de Colombia.
    3. Mauricio Cardenas & Raquel Bernal, 2003. "Determinants of Labor Demand in Colombia: 1976-1996," NBER Working Papers 10077, National Bureau of Economic Research, Inc.
    4. Enrique López & Marla Ripoll & Freddy Cepeda, . "Crónica de los Modelos de Equilibrio General en Colombia," Borradores de Economia 013, Banco de la Republica de Colombia.
    5. Ramos, Raul & Duque, Juan C. & Surinach, Jordi, 2010. "Is the wage curve formal or informal? Evidence for Colombia," Economics Letters, Elsevier, vol. 109(2), pages 63-65, November.
    6. John Hutton & Anna Ruocco, 1999. "Tax Reform and Employment in Europe," International Tax and Public Finance, Springer, vol. 6(3), pages 263-287, August.
    7. Bernal Raquel, 2009. "The Informal Labor Market in Colombia: identification and characterization," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
    8. Luis Eduardo Arango & Carlos Esteban Posada, 2006. "La Tasa De Desempleo De Largo Plazo En Colombia," BORRADORES DE ECONOMIA 003085, BANCO DE LA REPÚBLICA.
    9. Bohringer, Christoph & Boeters, Stefan & Feil, Michael, 2005. "Taxation and unemployment: an applied general equilibrium approach," Economic Modelling, Elsevier, vol. 22(1), pages 81-108, January.
    10. Alejandro GAVIRIA URIBE & Jairo Augusto NUÑEZ MENDEZ, 2003. "Evaluating the impact of SENA on earnings and Employment," ARCHIVOS DE ECONOMÍA 002646, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
    11. Diego Corredor & Oliver Enrique Pardo, 2008. "Matrices de Contabilidad Social 2003, 2004 y 2005," ARCHIVOS DE ECONOMÍA 004582, DEPARTAMENTO NACIONAL DE PLANEACIÓN.
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