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

Author

Listed:
  • Korkeamäki, Ossi

    (Government Institute for Economic Research)

  • Uusitalo, Roope

    (Institute for Labour Market Policy Evaluation)

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.

Suggested Citation

  • Korkeamäki, Ossi & Uusitalo, Roope, 2006. "Employment effects of a payroll-tax cut - evidence from a regional tax exemption experiment," Working Paper Series 2006:10, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  • Handle: RePEc:hhs:ifauwp:2006_010
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    References listed on IDEAS

    as
    1. 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.
    2. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers 194, Statistics Norway, Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. "A tax on jobs" - experimental evidence
      by chris dillow in Stumbling and Mumbling on 2010-04-08 18:08:10
    2. Osborne's wage squeeze
      by chris in Stumbling and Mumbling on 2015-11-26 20:34:58

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    More about this item

    Keywords

    Payroll-tax; Labour demand; Tax incidence; Propensity score matching;
    All these keywords.

    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, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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