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Estimating the Impacts of Payroll Taxes: Evidence from Canadian Employer-Employee Tax Data

Author

Listed:
  • Deslauriers, Jonathan

    () (HEC Montreal)

  • Dostie, Benoit

    () (HEC Montreal)

  • Gagné, Robert

    () (HEC Montreal)

  • Paré, Jonathan

    () (HEC Montreal)

Abstract

In this paper, we use linked employer-employee administrative tax data from Canada to estimate the impact of payroll taxes on a variety of firms and workers outcomes. At the firm level, we use geographic and time variations in tax rates to identify the effect of payroll taxes on wage growth at the worker level. For one province, we exploit a clean overtime change in the payroll tax rate to estimate its impact on the firm's level of employment, average wage and productivity, with difference-in-differences models, taking into account firm-level unobserved heterogeneity. Additionally, taking advantage of the nature of linked data, we estimate wage equations with both fixed worker and firm fixed effects. We find no impact on employment, productivity and profits, but significant impacts on wages, implying that payroll taxes are passed almost entirely to workers in the form of lower wages.

Suggested Citation

  • Deslauriers, Jonathan & Dostie, Benoit & Gagné, Robert & Paré, Jonathan, 2018. "Estimating the Impacts of Payroll Taxes: Evidence from Canadian Employer-Employee Tax Data," IZA Discussion Papers 11598, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11598
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    References listed on IDEAS

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    4. Benoit Dostie, 2013. "Estimating the Returns to Firm-Sponsored On-the-Job and Classroom Training," Journal of Human Capital, University of Chicago Press, vol. 7(2), pages 161-189.
    5. 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.
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    More about this item

    Keywords

    payroll taxes; wages; productivity; employment; linked employer-employee data;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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