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The Finnish payroll tax cut experiment revisited, or where did the money go?

  • Ossi Korkeamäki


In this paper I evaluate the effects of a regional experiment that reduced payroll-taxes by 3–6 percentage points of the firm’s wage sum in Northern and Eastern Finland. I estimate the effect of the payroll-tax reduction on firms’ employment, wage sum and profits, and on workers hourly pay and monthly hours worked, by comparing employment and wage changes before and after the start of the experiment to a control region. According to my results, the reduction in the payroll-taxes did not lead to any clear cut aggregate effects in the target region.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa11p898.

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Date of creation: Sep 2011
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Handle: RePEc:wiw:wiwrsa:ersa11p898
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  1. Daniel Aaronson & Eric French, 2007. "Product Market Evidence on the Employment Effects of the Minimum Wage," Journal of Labor Economics, University of Chicago Press, vol. 25, pages 167-200.
  2. Draca, Mirko & Machin, Steve & Van Reenen, John, 2006. "Minimum Wages and Firm Profitability," CEPR Discussion Papers 5456, C.E.P.R. Discussion Papers.
  3. Goerke, Laszlo, 1996. "Taxes on Payroll, Revenues and Profits in Three Models of Collective Bargaining," Scottish Journal of Political Economy, Scottish Economic Society, vol. 43(5), pages 549-65, November.
  4. 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.
  5. Ossi Korkeamäki & Roope Uusitalo, 2009. "Employment and wage effects of a payroll-tax cut—evidence from a regional experiment," International Tax and Public Finance, Springer, vol. 16(6), pages 753-772, December.
  6. Hansen, Christian B., 2007. "Generalized least squares inference in panel and multilevel models with serial correlation and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 670-694, October.
  7. Johansen, F. & Klette, T.J., 1998. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Memorandum 27/1998, Oslo University, Department of Economics.
  8. Guido Imbens & Jeffrey Wooldridge, 2008. "Recent developments in the econometrics of program evaluation," CeMMAP working papers CWP24/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Hansen, Christian B., 2007. "Asymptotic properties of a robust variance matrix estimator for panel data when T is large," Journal of Econometrics, Elsevier, vol. 141(2), pages 597-620, December.
  10. Daniel Aaronson, 2001. "Price Pass-Through And The Minimum Wage," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 158-169, February.
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