Policy Thresholds as Growth Barriers: Theory and Evidence from a Payroll Tax Notch

Sami Jysmä, Youssef Benzarti and Jarkko Harju

No 35484, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Discrete policy thresholds are pervasive in tax and regulatory systems and can substantially distort behavior. We show that notches acting as barriers to mobility within a distribution generate distortions extending far beyond the threshold. The same mechanism biases conventional difference-in-differences estimators, and we propose a new methodology to recover causal effects. Applying the method to the abolition of a size-based payroll tax notch, we find that the notch reduced the number of firms above the threshold by 18 percent and lowered treated firms’ employment, capital stock, and value added by 10 percent, whereas conventional difference-in-differences estimates imply negligible effects.

JEL-codes: C01 H25 H30 (search for similar items in EconPapers)
Date: 2026-07
Note: PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w35484.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Policy Thresholds as Growth Barriers: Theory and Evidence from a Payroll Tax Notch (2026)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:35484

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w35484
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().