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The Finnish payroll tax cut experiment revisited

  • Ossi Korkeamäki

In this paper I evaluate the effects of a regional experiment that reduced payroll taxes by 3?6 percentage points of the firms? wage sum in northern and eastern Finland. I estimate the effect of the payroll tax reduction on firms? employment levels, wage sum and profits, and on workers? hourly pay and monthly hours worked, by comparing the changes in employment and wages before and after the start of the experiment to a control region. My results indicate that the reduction in payroll taxes did not lead to any unequivocal aggregate effects in the target region.

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Paper provided by Government Institute for Economic Research Finland (VATT) in its series Working Papers with number 22.

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Date of creation: 13 Apr 2011
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Handle: RePEc:fer:wpaper:22
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  1. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
  2. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers 194, Research Department of Statistics Norway.
  3. Draca, Mirko & Machin, Stephen & Van Reenen, John, 2006. "Minimum Wages and Firm Profitability," IZA Discussion Papers 1913, Institute for the Study of Labor (IZA).
  4. Nilsson Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2008. "Multinational Firms and Job Tasks," Working Paper Series 781, Research Institute of Industrial Economics.
  5. Daniel Aaronson & Eric French, 2003. "Product market evidence on the employment effects of the minimum wage," Working Paper Series WP-03-17, Federal Reserve Bank of Chicago.
  6. Wooldridge, Jeffrey M. & Imbens, Guido, 2009. "Recent Developments in the Econometrics of Program Evaluation," Scholarly Articles 3043416, Harvard University Department of Economics.
  7. Sanna-Mari Hynninen & Aki Kangasharju & Jaakko Pehkonen, 2009. "Matching Inefficiencies, Regional Disparities, and Unemployment," LABOUR, CEIS, vol. 23(3), pages 481-506, 09.
  8. Jarkko Harju, 2009. "Voluntary pension savings: the effects of the Finnish tax reform on savers' behaviour," Working Papers 7, Government Institute for Economic Research Finland (VATT).
  9. Hansen, Christian B., 2007. "Asymptotic properties of a robust variance matrix estimator for panel data when T is large," Journal of Econometrics, Elsevier, vol. 141(2), pages 597-620, December.
  10. Goerke, Laszlo, 1996. "Taxes on Payroll, Revenues and Profits in Three Models of Collective Bargaining," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(5), pages 549-65, November.
  11. 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, vol. 16(6), pages 753-772, December.
  12. Hansen, Christian B., 2007. "Generalized least squares inference in panel and multilevel models with serial correlation and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 670-694, October.
  13. Seppo Kari & Hanna Karikallio & Jukka Pirttilä, 2009. "The impact of dividend taxation on dividends and investment: New evidence based on a natural experiment," Working Papers 9, Government Institute for Economic Research Finland (VATT).
  14. Eerola , Essi & Määttänen , Niku, 2005. "The optimal tax treatment of housing capital in the neoclassical growth model," Research Discussion Papers 10/2005, Bank of Finland.
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