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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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File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa11/e110830aFinal00898.pdf
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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. Mirko Draca & Stephen Machin & John Van Reenen, 2006. "Minimum wages and firm profitability," LSE Research Online Documents on Economics 774, London School of Economics and Political Science, LSE Library.
  2. Wooldridge, Jeffrey M. & Imbens, Guido, 2009. "Recent Developments in the Econometrics of Program Evaluation," Scholarly Articles 3043416, Harvard University Department of Economics.
  3. Eric French & Dan Aaronson, 2004. "Product Market Evidence on the Employment Effects of the Minimum Wage," Econometric Society 2004 North American Summer Meetings 549, Econometric Society.
  4. 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.
  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. Goerke, L., 1996. "Taxes on payroll, revenues and profits in three models of collective bargaining," Discussion Paper Series In Economics And Econometrics 9603, Economics Division, School of Social Sciences, University of Southampton.
  7. 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.
  8. 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.
  9. Frode Johansen & Tor Jacob Klette, 1997. "Wage and Employment Effects of Payroll Taxes and Investment Subsidies," Discussion Papers 194, Research Department of Statistics Norway.
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