Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336502 
Year of Publication: 
2026
Series/Report no.: 
NBB Working Paper No. 487
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
Belgium's 2016 payroll tax exemption for first-time employers triggered a sharp increase in firms hiring their first worker but little growth among larger firms. To account for this pattern, we develop and estimate a directed search model - with discrete hiring, firm heterogeneity, and endogenous entry - using Belgian microdata. The exemption reduces the high marginal cost of the first hire, enabling many previously non-hiring entrepreneurs to become employers, but most lack the productivity needed to expand beyond one worker. The model matches the post-reform size distribution and identifies the conditions under which size-dependent hiring subsidies can foster sustained firm growth.
Subjects: 
payroll taxes
size-dependent policies
hiring frictions
wage subsidies
competitive search theory
JEL: 
H25
J08
J23
J38
L25
Document Type: 
Working Paper

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