The Finnish payroll tax cut experiment revisited

Ossi Korkeamäki

No 22, Working Papers from VATT Institute for Economic Research

Abstract: In this paper I evaluate the effects of a regional experiment that reduced payroll taxes by 3–6 percentage points of the firms' wage sum in northern and eastern Finland. I estimate the effect of the payroll tax reduction on firms' employment levels, wage sum and profits, and on workers' hourly pay and monthly hours worked, by comparing the changes in employment and wages before and after the start of the experiment to a control region. My results indicate that the reduction in payroll taxes did not lead to any unequivocal aggregate effects in the target region.

Keywords: Payroll-tax, labour demand, tax incidence, Labour market, Työmarkkinat, Regional development, Aluekehitys, Taxation, Verotus, Labor market and policies promoting economic growth, Työmarkkinat ja kasvua tukeva politiikka, J180 - Demographic Economics: Public Policy, J230 - Employment Determination; Job Creation; Demand for Labor; Self-Employment, J380 - Wages, Compensation, and Labor Costs: Public Policy (wage subsidies, minimum wage legislation), J580 - Labor-Management Relations, Trade Unions, and Collective Bargaining: Public Policy, J650 - Unemployment Insurance; Severance Pay; Plant Closings, J680 - Mobility, Unemployment, and Vacancies: Public Policy (Employment Services), (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-acc, nep-dem, nep-lab and nep-lma
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