Labor Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia
Adriana Kugler and Maurice Kugler () Economic Development and Cultural Change, 2009, vol. 57, issue 2, pages 335-358 Abstract: We use a panel of manufacturing plants from Colombia to analyze how the rise in payroll tax rates over the 1980s and 1990s affected the labor market. Our estimates indicate that formal wages fall by between 1.4% and 2.3% as a result of a 10% rise in payroll taxes. This "less-than-full shifting" is likely to be the result of weak linkages between benefits and taxes and the presence of downward wage rigidities in Colombia. Because the costs of taxation are only partly shifted from employers to employees, employment also falls. Our results indicate that a 10% increase in payroll taxes lowered formal employment by between 4% and 5%. In addition, we find some evidence of less shifting and larger disemployment effects for production than for nonproduction workers. These results suggest that policies aimed at boosting the relative demand of less skilled workers by reducing social security taxes may be effective in Latin American countries, where minimum wages bind and benefits are often not directly linked to contributions. (c) 2009 by The University of Chicago. All rights reserved.. Date: 2009 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:ucp:ecdecc:v:57:y:2009:i:2:p:335-358 Ordering information: This journal article can be ordered from Access Statistics for this article Economic Development and Cultural Change is edited by John Strauss More articles in Economic Development and Cultural Change from University of Chicago Press |
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