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Does Mandating Social Insurance Affect Entrepreneurial Activity?

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  • Benzarti, Youssef
  • Harju, Jarkko
  • Matikka, Tuomas

Abstract

This paper estimates the effect of relaxing the social insurance mandate on entrepreneurial activity using rich administrative data from Finland. We find that relaxing the social insurance mandate leads entrepreneurs to reduce their contributions by 16%, which they channel instead into their firms. While young firms use the saved cash to increase their sales by 11% and labor costs by 6%, older firms use it to improve their net lending position by purchasing stocks. Our results imply that the impact of the social insurance mandate on business activity is heterogeneous and depends on the age of the firm.

Suggested Citation

  • Benzarti, Youssef & Harju, Jarkko & Matikka, Tuomas, 2019. "Does Mandating Social Insurance Affect Entrepreneurial Activity?," Working Papers 119, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:119
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    Cited by:

    1. Benzarti, Youssef & Harju, Jarkko, 2021. "Can payroll tax cuts help firms during recessions?," Journal of Public Economics, Elsevier, vol. 200(C).
    2. Schoukens, Paul & Weber, Enzo, 2020. "Unemployment insurance for the self-employed: a way forward post-corona," IAB-Discussion Paper 202032, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Harju, Jarkko & Koivisto, Aliisa & Matikka, Tuomas, 2022. "The effects of corporate taxes on small firms," Journal of Public Economics, Elsevier, vol. 212(C).
    4. Ander Iraizoz, 2020. "Saving for retirement through the public pension system: Evidence from the self-employed in Spain," PSE Working Papers halshs-02948136, HAL.
    5. Enrico Rubolino, 2022. "Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy," Cahiers de Recherches Economiques du Département d'économie 22.01, Université de Lausanne, Faculté des HEC, Département d’économie.
    6. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    7. Ander Iraizoz, 2020. "Saving for retirement through the public pension system: Evidence from the self-employed in Spain," Working Papers halshs-02948136, HAL.
    8. Enrico Rubolino, 2022. "Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy," CESifo Working Paper Series 9671, CESifo.

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    More about this item

    Keywords

    social insurance; entrepreneurs; economic activity; eläkevakuutusmaksut; yrittäjät; yritysten kehitys; Social security; taxation and inequality; Sosiaaliturva; verotus ja tulonjako; H25; H32; H55; Elinkeinopolitiikka; Sosiaaliturva;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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