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Title:Do regional payroll tax reductions boost employment? PDF Logo
Authors:Bennmarker, Helge
Mellander, Erik
Öckert, Björn
Issue Date:2008
Series/Report no.:Working paper // IFAU - Institute for Labour Market Policy Evaluation 2008:19
Abstract: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.
Subjects:Payroll tax
labour demand
incidence
firm entry/exit
difference-in-differences
JEL:H22
J23
J38
J58
J68
Document Type:Working Paper
Appears in Collections:Working Papers, IFAU - Institute for Evaluation of Labour Market and Education Policy

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