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

  • Korkeamäki, Ossi

    ()

    (Government Institute for Economic Research)

  • Uusitalo, Roope

    ()

    (Institute for Labour Market Policy Evaluation)

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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Paper provided by IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2006:10.

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Length: 29 pages
Date of creation: 10 Oct 2006
Date of revision:
Handle: RePEc:hhs:ifauwp:2006_010
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  1. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
  2. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers 194, Statistics Norway, Research Department.
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