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Employment Effects of a Payroll-Tax Cut: Evidence from a Regional Tax Exemption Experiment

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  • Ossi Korkeamäki
  • Roope Uusitalo

Abstract

In this paper we evaluate the effects of a regional experiment that reduced payroll taxes by 3-6 percentage points in Northern Finland for three years. We match each firm in the target region with a similar firm in the control region and estimate the effect of the payroll-tax reduction by comparing employment and wage changes within the matched pairs before and after the start of the experiment. According to our results the reduction in payroll taxes led to somewhat faster wage growth in the target region. The increase in wages offset roughly half of the impact of the payroll-tax cut on the labour costs. The remaining labour cost reduction had no significant effects on employment.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 407.

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Date of creation: 21 Nov 2006
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Handle: RePEc:fer:dpaper:407

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Related research

Keywords: Payroll-tax; labour demand; tax incidence; propensity score matching;

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References

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  1. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers, Research Department of Statistics Norway 194, Research Department of Statistics Norway.
  2. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
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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. Viren, Matti, 2011. "Does housing allowance feed through into rental prices?," Research Discussion Papers 11/2011, Bank of Finland.

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