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Payroll Taxes, Wages and Employment: Identification through Policy Changes

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Author Info

  • Guillermo Cruces

    (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) - FCE - UNLP y CONICET)

  • Sebastian Galiani

    (Washington University in Saint Louis - United States.)

  • Susana Kidyba

    (Instituto Nacional de Estadística y Censos (INDEC) - Argentina)

Abstract

This paper investigates the effect of changes in payroll taxes on wages and employment in Argentina. The analysis, based on administrative data, focuses on the impact of a series of major changes in payroll taxes which varied across geographical areas. This setup offers two main advantages over previous studies. First, using longitudinal data, the variation in tax rates across space and time provides a plausible source of identification of their effects on employment and wages. Second, the use of legal tax rates for each area at each point in time provides a remedy for the measurement error bias raised by the use of empirical rates constructed from observed tax and wage bills. Once this bias is accounted for, the results indicate that changes in payroll tax rates are only partially shifted onto wages, and they point to the absence of any significant effect on employment.

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Bibliographic Info

Paper provided by CEDLAS, Universidad Nacional de La Plata in its series CEDLAS, Working Papers with number 0093.

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Length: 41 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:dls:wpaper:0093

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Web page: http://cedlas.econo.unlp.edu.ar/
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Keywords: Argentina; payroll taxes; employment; wages;

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  1. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
  2. Cruces, Guillermo & Galiani, Sebastian & Kidyba, Susana, 2010. "Payroll taxes, wages and employment: Identification through policy changes," Labour Economics, Elsevier, vol. 17(4), pages 743-749, August.
  3. Jonathan Gruber & Alan Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensations Insurance," Working Papers 659, Princeton University, Department of Economics, Industrial Relations Section..
  4. Kugler, Adriana D. & Kugler, Maurice, 2003. "The Labour Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia," CEPR Discussion Papers 4046, C.E.P.R. Discussion Papers.
  5. Holmlund, Bertil, 1983. "Payroll Taxes and Wage Inflation: The Swedish Experiences," Working Paper Series 68, Research Institute of Industrial Economics.
  6. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  7. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
  8. Sebastian Galiani & Pablo Gerchunoff, 2003. "The Labor Market," Working Papers 56, Universidad de San Andres, Departamento de Economia, revised Feb 2003.
  9. Brittain, John A, 1971. "The Incidence of Social Security Payroll Taxes," American Economic Review, American Economic Association, vol. 61(1), pages 110-25, March.
  10. Murphy, Kevin J., 2007. "The impact of unemployment insurance taxes on wages," Labour Economics, Elsevier, vol. 14(3), pages 457-484, June.
  11. 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.
  12. Besley, Timothy J. & Burgess, Robin, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," CEPR Discussion Papers 3260, C.E.P.R. Discussion Papers.
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Cited by:
  1. Eduardo Lora & Johanna Fajardo, 2012. "Employment and Taxes in Latin America: An Empirical Study of the Effects of Payroll, Corporate Income and Value-Added Taxes on Labor Outcomes," IDB Publications 76958, Inter-American Development Bank.
  2. Cruces, Guillermo & Galiani, Sebastian & Kidyba, Susana, 2010. "Payroll taxes, wages and employment: Identification through policy changes," Labour Economics, Elsevier, vol. 17(4), pages 743-749, August.
  3. Bergolo, Marcelo & Cruces, Guillermo, 2014. "Work and Tax Evasion Incentive Effects of Social Insurance Programs: Evidence from an Employment-Based Benefit Extension," IZA Discussion Papers 8198, Institute for the Study of Labor (IZA).
  4. Santiago Levy & Norbert Schady, 2013. "Latin America's Social Policy Challenge: Education, Social Insurance, Redistribution," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 193-218, Spring.
  5. Richard M. Bird & Michael Smart, 2012. "Financing Social Expenditures in Developing Countries: Payroll or Value Added Taxes?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1206, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  6. Skedinger, Per, 2014. "Effects of Payroll Tax Cuts for Young Workers," Working Paper Series 1031, Research Institute of Industrial Economics.

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