Payroll Tax Reductions on Low Wages and Minimum Wage in France

Julien Albertini, Arthur Poirier and Anthony Terriau
Additional contact information
Julien Albertini: University Lumière Lyon 2, CNRS, Université Jean Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France
Arthur Poirier: LEDa, Paris Dauphine University

No 2501, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: Introduced in France in the 1990s to reduce the cost of low-skilled labor, payroll tax reductions on low wages were later expanded and extended to higher wages. This study evaluates the impact of the current payroll tax schedule on employment, fiscal surplus, and welfare. We develop a life-cycle matching model in which workers are heterogeneous in terms of age, education, human capital, family status, hours worked and idiosyncratic productivity, and where search effort, hiring and separations are endogenous. Accounting for interactions with the socio-fiscal system, we demonstrate that reducing payroll tax cuts for low wages would result in declines in both employment and fiscal surplus. Furthermore, we show that increasing the minimum wage would significantly reduce employment and fiscal surplus, with the magnitude of the effect depending on whether the payroll tax schedule and other socio-fiscal measures are indexed to the minimum wage. Lastly, we identify the optimal payroll tax schedule, revealing that employment, fiscal surplus, and welfare can all be improved by increasing payroll tax reductions for wages near the minimum wage while reducing them for wages exceeding twice the minimum wage.

Keywords: Payroll Tax Reductions; Minimum Wage; Search and Matching; Life Cycle (search for similar items in EconPapers)
JEL-codes: J23 J31 J32 J38 J64 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-dge, nep-eur, nep-inv, nep-lma, nep-pbe and nep-pub
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https://www.gate.cnrs.fr/RePEc/2025/2501.pdf (application/pdf)

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Working Paper: Payroll Tax Reductions on Low Wages and Minimum Wage in France (2025)
Working Paper: Payroll Tax Reductions on Low Wages and Minimum Wage in France (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:2501

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