IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa12p567.html
   My bibliography  Save this paper

Evaluating regional cuts in the payroll tax from a firm perspective

Author

Listed:
  • Jonas MÃ¥nsson
  • Shahid Quoreshi

Abstract

Cuts in payrolls taxes as a regional support measure is used throughout Europe. In this study we address some of the shortcomings in previous evaluations. A first shortcoming concerns expected outcomes. Most evaluation focus employment impacts and there are from previous research few indications that this type of support have any impacts on employment. In this paper on the impacts of the Swedish support we address this type of support from a firm perspective, i.e. what impacts can be expected for/in the firm? From the theory and business logic we claim that support given to a firm can be used to whatever the firm finds most suitable. Therefore, evaluating on employment impacts is a rather narrow focus. We extend the analysis to cover impacts on turn-over, employment, wages, investments, long run debts and profits. A second short coming is the time horizon. Most evaluations evaluate the impacts of payroll tax cuts with a few years after the support was launched. In our evaluation the support was launched in 2001 and we follow firms until 2009 which gives us the possibility to monitor the impact development over an 8 year period. Finally, we propose a method to be used when evaluating regional policy. Our results indicates that a between 20-55 percent in the variation in our outcome variables can in fact be explained by municipality characteristics, e.g. the composition of population and its characteristics, regional growth, etc. Further, the result from the evaluation follows a clear business logic: In the short run profits increase and the turn-over increased. The increase profits are later used to increase wages (including owners wages). Later on in the observation period (after 7 years) we find indication on impacts on investments. As in previous we do not find any significant impacts on employment. However, from a policy perspective we conclude that the support has some short term impacts that are reduced with time and the long term impacts are questionable.

Suggested Citation

  • Jonas MÃ¥nsson & Shahid Quoreshi, 2012. "Evaluating regional cuts in the payroll tax from a firm perspective," ERSA conference papers ersa12p567, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa12p567
    as

    Download full text from publisher

    File URL: https://www-sre.wu.ac.at/ersa/ersaconfs/ersa12/ersa12acfinal00569.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    2. 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.
    3. Bennmarker, Helge & Mellander, Erik & Öckert, Björn, 2009. "Do regional payroll tax reductions boost employment?," Labour Economics, Elsevier, vol. 16(5), pages 480-489, October.
    4. Gadd, Håkan & Hansson, Gustav & Månsson, Jonas, 2008. "Evaluating the impact of firm subsidy using a multilevel propensity score approach," CAFO Working Papers 2009:3, Linnaeus University, Centre for Labour Market Policy Research (CAFO), School of Business and Economics.
    5. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    6. Bohm, Peter & Lind, Hans, 1993. "Policy evaluation quality : A quasi-experimental study of regional employment subsidies in Sweden," Regional Science and Urban Economics, Elsevier, vol. 23(1), pages 51-65, March.
    7. Murphy, Kevin J., 2007. "The impact of unemployment insurance taxes on wages," Labour Economics, Elsevier, vol. 14(3), pages 457-484, June.
    8. Ashenfelter, Orley & Card, David, 1985. "Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 648-660, November.
    9. 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.
    10. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers 194, Statistics Norway, Research Department.
    11. Holmlund, Bertil, 1983. " Payroll Taxes and Wage Inflation: The Swedish Experience," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(1), pages 1-15.
    12. Martin, John P. & Grubb, David, 2001. "What works and for whom: a review of OECD countries' experiences with active labour market policies," Working Paper Series 2001:14, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    13. Stein ûstbye, 1998. "original: The impact of regional employment subsidies under wage bargaining," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 32(2), pages 221-235.
    14. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
    2. Mattsson, Pontus, 2019. "The impact of labour subsidies on total factor productivity and profit per employee," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 325-341.
    3. Manelici, Isabela & Pantea, Smaranda, 2021. "Industrial policy at work: Evidence from Romania’s income tax break for workers in IT," European Economic Review, Elsevier, vol. 133(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hildegunn Ekroll Stokke, 2015. "Regional payroll tax cuts and individual wages: Heterogeneous effects across education groups," Working Paper Series 16815, Department of Economics, Norwegian University of Science and Technology.
    2. Hyejin Ku & Uta Schönberg & Ragnhild C. Schreiner, 2018. "How Do Firms Respond to Place-Based Tax Incentives?," RF Berlin - CReAM Discussion Paper Series 1811, Rockwool Foundation Berlin (RF Berlin) - Centre for Research and Analysis of Migration (CReAM).
    3. Kim, Jinyoung & Kim, Seonghoon & Koh, Kanghyock, 2022. "Labor market institutions and the incidence of payroll taxation," Journal of Public Economics, Elsevier, vol. 209(C).
    4. Bennmarker, Helge & Mellander, Erik & Öckert, Björn, 2009. "Do regional payroll tax reductions boost employment?," Labour Economics, Elsevier, vol. 16(5), pages 480-489, October.
    5. Skedinger, Per, 2014. "Effects of Payroll Tax Cuts for Young Workers," Working Paper Series 1031, Research Institute of Industrial Economics.
    6. Egebark, Johan & Kaunitz, Niklas, 2018. "Payroll taxes and youth labor demand," Labour Economics, Elsevier, vol. 55(C), pages 163-177.
    7. Ku, Hyejin & Schönberg, Uta & Schreiner, Ragnhild C., 2020. "Do place-based tax incentives create jobs?," Journal of Public Economics, Elsevier, vol. 191(C).
    8. Clément Carbonnier, 2014. "Payroll Taxation and the structure of qualifications and wages in a segmented frictional labor market with intrafirm bargaining," THEMA Working Papers 2014-20, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    9. Clément Carbonnier, 2015. "Payroll Taxation, qualifications, wages and unemployment rates in a frictional labor market with productive interactions between segments," Working Papers hal-01203122, HAL.
    10. Egebark, Johan & Kaunitz, Niklas, 2013. "Do payroll tax cuts raise youth employment?," Working Paper Series 2013:27, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    11. 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.
    12. Jonathan Deslauriers & Benoit Dostie & Robert Gagné & Jonathan Paré, 2021. "Estimating the impacts of payroll taxes: Evidence from Canadian employer–employee tax data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(4), pages 1609-1637, November.
    13. Matthias Collischon & Kamila Cygan-Rehm & Regina T. Riphahn, 2021. "Employment effects of payroll tax subsidies," Small Business Economics, Springer, vol. 57(3), pages 1201-1219, October.
    14. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
    15. Ossi Korkeamäki & Roope Uusitalo, 2009. "Employment and wage effects of a payroll-tax cut—evidence from a regional experiment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 753-772, December.
    16. Sven-Olov Daunfeldt & Anton Gidehag & Niklas Rudholm, 2021. "How Do Firms Respond to Reduced Labor Costs? Evidence from the 2007 Swedish Payroll Tax Reform," Journal of Industry, Competition and Trade, Springer, vol. 21(3), pages 315-338, September.
    17. repec:hal:spmain:info:hdl:2441/18k79jk7138279qstaf2rdulvu is not listed on IDEAS
    18. Clément Carbonnier & Bruno Palier & Michaël Zemmour, 2016. "Tax cuts or social investment? Evaluating the opportunity cost of French employment strategy," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(6), pages 1687-1705.
    19. Ángel Melguizo & José González-Páramo, 2013. "Who bears labour taxes and social contributions? A meta-analysis approach," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(3), pages 247-271, August.
    20. Clément Carbonnier & Bruno Palier & Michael Zemmour, 2014. "Tax cuts or social investment? Evaluating the opportunity cost of the French employment strategy," Sciences Po publications 31, Sciences Po.
    21. Gavrilova, Evelina & Zoutman, Floris T. & Hopland, Arnt O., 2017. "How to Use One Instrument to Identify Two Elasticities," Discussion Papers 2017/2, Norwegian School of Economics, Department of Business and Management Science.

    More about this item

    JEL classification:

    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa12p567. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gunther Maier (email available below). General contact details of provider: http://www.ersa.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.