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Employment effects of a payroll-tax cut - evidence from a regional tax exemption experiment

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Author Info
Korkeamäki, Ossi () (Government Institute for Economic Research)
Uusitalo, Roope () (Institute for Labour Market Policy Evaluation)

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Abstract

In this paper we evaluate the effects of a regional experiment that reduced payroll-taxes by 3–6 percentage points for three years in Northern Finland. 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 the 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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Publisher Info
Paper provided by IFAU - Institute for Labour Market Policy Evaluation in its series Working Paper Series with number 2006:10.

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Length: 29 pages
Date of creation: 10 Oct 2006
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Handle: RePEc:hhs:ifauwp:2006_010

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Related research
Keywords: Payroll-tax Labour demand Tax incidence Propensity score matching

Other versions of this item:

Find related papers by JEL classification:
J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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References listed on IDEAS
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  1. Johansen, F. & Klette, T.J., 1998. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Memorandum 27/1998, Oslo University, Department of Economics.
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  2. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S72-101, July. [Downloadable!] (restricted)
    Other versions:
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