Do regional payroll tax reductions boost employment?

Arbeitspapier

Using a Difference-in-Differences approach we evaluate the effects of a 10 percentage points reduction in the payroll tax introduced in 2002 for firms in the northern part of Sweden. We find no employment effects for existing firms and can rule out that a 1 percentage point payroll tax reduction would increase employment with more than 0.2 percent. We do, however, find that tax reductions have significantly positive effects on the average wage bill per employee. These are likely to be driven by higher average wages, but might also be due to more hours worked. As a sensitivity check we investigate if reduced payroll taxes affect the likelihood of firm entry and exit, and find some support for a net firm inflow. Our attempts to assess concomitant effects on employment indicate that payroll tax reductions might yield increases in employment through the start-up of new firms.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2008:19

Classification and Topics

• Classification: Wirtschaft ; Taxation and Subsidies: Incidence ; Labor Demand ; Wages, Compensation, and Labor Costs: Public Policy ; Labor-Management Relations, Trade Unions, and Collective Bargaining: Public Policy ; Mobility, Unemployment, and Vacancies: Public Policy
• Subject: Payroll tax ; labour demand ; incidence ; firm entry/exit ; difference-in-differences ; Lohnsummensteuer ; Arbeitsnachfrage ; Steuerinzidenz ; Markteintritt ; Marktaustritt ; Schweden

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bennmarker, Helge ; Mellander, Erik ; Öckert, Björn
• Event: Veröffentlichung
• (who): Institute for Labour Market Policy Evaluation (IFAU)
• (where): Uppsala
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/45771
• Last update: 10.03.2025, 11:45 AM CET