Does Payroll Tax Affect Firm Behaviour?

Ben Ralston

Economic Papers, 2020, vol. 39, issue 1, 15-27

Abstract: Payroll tax is applied to the total remuneration expenditure of a firm. Once the total remuneration exceeds a certain threshold, the firm is subject to a marginal tax called payroll tax. In a perverse way, the threshold could discourage some firms from growing so that payroll tax is avoided. This paper uses administrative business income tax data to determine whether payroll tax affects the behaviour of businesses. It is found that in general, firms do not bunch just below the payroll tax threshold and firms do not attempt to avoid payroll tax by hiring contractors.

Date: 2020
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