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Do payroll tax cuts raise youth employment?

  • Egebark, Johan

    ()

    (Dept. of Economics, Stockholm University)

  • Kaunitz, Niklas

    ()

    (SOFI)

In 2007, the Swedish employer-paid payroll tax was cut on a large scale for young workers, substantially reducing labor costs for this group. Using Diff erence-in-Differences paired with exact matching, we estimate a small impact, both on employment and on wages, implying a labor demand elasticity for young workers at around -0.31. Since the tax reduction applied also to existing employments, the cost of the reform was sizable, and the estimated cost per created job is at more than four times that of directly hiring workers at the average wage. Hence, we conclude that payroll tax cuts are an inefficient way to boost employment for young individuals.

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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2014:1.

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Length: 43 pages
Date of creation: 30 Jan 2014
Date of revision:
Handle: RePEc:hhs:sunrpe:2014_0001
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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. 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.
  3. Bennmarker, Helge & Mellander, Erik & Öckert, Björn, 2008. "Do regional payroll tax reductions boost employment?," Working Paper Series 2008:19, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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  9. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "Evaluation of the Swedish earned income tax credit," Working Paper Series, Center for Labor Studies 2012:3, Uppsala University, Department of Economics.
  10. 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.
  11. Anderson, Patricia M. & Meyer, Bruce D., 2000. "The effects of the unemployment insurance payroll tax on wages, employment, claims and denials," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 81-106, October.
  12. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2004. "Evaluating the Employment Impact of a Mandatory Job Search Program," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 569-606, 06.
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