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Regional payroll tax cuts and individual wages: Heterogeneous effects across education groups

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  • Hildegunn Ekroll Stokke

    (Department of Economics, Norwegian University of Science and Technology)

Abstract

The empirical evidence on the incidence of payroll taxation is primarily based on the wage bill of firms. This paper applies matched employer-employee register data on individual wages for all private sector workers in Norway. Exploiting a payroll tax reform and using the difference-indifference approach, I find that 1% reduction in labor costs generates 0.5% wage increase. Among low educated workers the degree of tax shifting equals 50%, while the wage response for highly educated is insignificant. Lower payroll taxes have limited effects on employment. The findings imply that the absolute value of the labor demand elasticity decreases with the level of education.

Suggested Citation

  • Hildegunn Ekroll Stokke, 2015. "Regional payroll tax cuts and individual wages: Heterogeneous effects across education groups," Working Paper Series 16815, Department of Economics, Norwegian University of Science and Technology.
  • Handle: RePEc:nst:samfok:16815
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    Cited by:

    1. Alessandro Zeli, 2018. "The impact of ACE on investment: the Italian case," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(3), pages 741-762, December.
    2. Gidehag, Anton, 2019. "Firms’ labor cost savings and recruitment of nonwestern immigrants: The unintended effect of a payroll tax reform," HFI Working Papers 5, Institute of Retail Economics (Handelns Forskningsinstitut).

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    More about this item

    Keywords

    Payroll tax cut; individual wages; heterogeneous effects; education;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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