Phasing Out Payroll Tax Subsidies

Anna Herget () and Regina T. Riphahn ()
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Anna Herget: University of Erlangen-Nuremberg
Regina T. Riphahn: University of Erlangen-Nuremberg

No 17587, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Many countries subsidize low-income employments or small jobs. These subsidies and their phasing out can generate labor market frictions and distort incentives. The German Minijob program subsidizes low-income jobs. It generates a 'Minijob trap' with substantial bunching along the earnings distribution. Since 2003, the newly introduced Midijob subsidy aims to reduce the Minijob-induced notch in the net earnings distribution. Midijobs reduce payroll taxes for employments above the Minijob earnings ceiling. We investigate whether introducing Midijobs reduced the Minijob trap. We apply a regression discontinuity design using administrative data and a difference-in-differences estimation using survey data. While in both cases our results show a small positive overall effect of Midijobs on transitions out of Minijobs, they are effective only for a narrow treatment group.

Keywords: Midijobs; Minijobs; payroll tax subsidy; causal effects; difference-in-differences; regression discontinuity; SOEP; SIAB (search for similar items in EconPapers)
JEL-codes: H24 J21 J38 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2024-12
New Economics Papers: this item is included in nep-eur, nep-lma, nep-pbe and nep-pub
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Forthcoming - forthcoming in: International Tax and Public Finance.

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