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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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File URL: http://cedlas.econo.unlp.edu.ar/archivos_upload/doc_cedlas93.pdf
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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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Postal: Calle 48 No555 - La Plata (1900)
Phone: 21- 1466
Fax: 54-21-25-9536
Web page: http://cedlas.econo.unlp.edu.ar/
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Related research

Keywords: Argentina; payroll taxes; employment; wages;

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References

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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. Timothy Besley & Robin Burgess, 2002. "Can labour regulation hinder economic performance? Evidence from India," LSE Research Online Documents on Economics 3779, London School of Economics and Political Science, LSE Library.
  3. Kugler, Adriana & Kugler, Maurice, 2003. "The Labor Market Effects of Payroll Taxes in a Middle-Income Country: Evidence from Colombia," IZA Discussion Papers 852, Institute for the Study of Labor (IZA).
  4. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  5. Jonathan Gruber & Alan B. Krueger, 1990. "The Incidence of Mandated Employer-Provided Insurance: Lessons from Workers' Compensation Insurance," NBER Working Papers 3557, National Bureau of Economic Research, Inc.
  6. 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.
  7. Guillermo Cruces & Sebastian Galiani & Susana Kidyba, 2010. "Payroll Taxes, Wages and Employment: Identification through Policy Changes," CEDLAS, Working Papers 0093, CEDLAS, Universidad Nacional de La Plata.
  8. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
  9. Holmlund, Bertil, 1983. "Payroll Taxes and Wage Inflation: The Swedish Experiences," Working Paper Series 68, Research Institute of Industrial Economics.
  10. Sebastian Galiani & Pablo Gerchunoff, 2003. "The Labor Market," Working Papers 56, Universidad de San Andres, Departamento de Economia, revised Feb 2003.
  11. Brittain, John A, 1971. "The Incidence of Social Security Payroll Taxes," American Economic Review, American Economic Association, vol. 61(1), pages 110-25, March.
  12. Murphy, Kevin J., 2007. "The impact of unemployment insurance taxes on wages," Labour Economics, Elsevier, vol. 14(3), pages 457-484, June.
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Cited by:
  1. Eduardo Lora & Deisy 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," Research Department Publications 4791, Inter-American Development Bank, Research Department.
  2. 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.
  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. Guillermo Cruces & Sebastian Galiani & Susana Kidyba, 2010. "Payroll Taxes, Wages and Employment: Identification through Policy Changes," CEDLAS, Working Papers 0093, CEDLAS, Universidad Nacional de La Plata.
  5. 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.

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