The temporary impact of permanent employment incentives: Evidence from Italy

This paper evaluates the short and medium-term effectiveness of payroll tax reductions aimed at promoting the permanent conversion of temporary contracts through social contribution exemptions. Using rich administrative data from Tuscany, providing detailed employment histories, we exploit a unique change in eligibility criteria in 2018 to estimate the causal impact of these exemptions. We find that the incentives immediately increased the probability of conversion, with no evidence of substitution against non-eligible cohorts. However, these positive effects were short-lived and appear to reflect anticipated conversions. Indeed, in the medium term, we find no persistent effects on a broad set of employment outcomes -- including whether the worker remains in the same permanent job, holds any permanent position, continues working in the same firm or sector, and how long has kept working -- and no evidence of heterogeneous effects across firm or worker characteristics.