Employment and taxes in Latin America: An empirical study of the effects of payroll, corporate income and value-added taxes on labor outcomes

Eduardo Lora and Johanna Fajardo-Gonzalez

Revista Cuadernos de Economia, 2016, vol. 35, issue Especial 67, 75-117

Abstract: This paper empirically explores the effects of payroll taxes, value-added taxes and corporate income taxes on a variety of labor market outcomes such as participation, employment, informality, and wages. The results are based on national level data of labor variables for 15 Latin American countries, and indicate that the effects of each tax are markedly different and may depend on several aspects of labor and tax institutions. Payroll taxes reduce employment and increase labor costs when their benefits are not valued by workers, but otherwise may increase labor participation and not raise labor costs. Value-added taxes increase informality and reduce skilled labor demand. In contrast, corporate income taxes may help reduce informality, especially among low education workers, but when tax enforcement capabilities are strong they may reduce labor participation and employment of medium- and high-education workers ***** Este artículo explora de manera empírica los efectos de los impuestos a la nómina, al valor agregado y a la renta de los negocios en una serie de variables del mercado de trabajo tales como participación laboral, empleo, informalidad y salarios. Los resultados, con datos para 15 países de América Latina, sugieren que los efectos de cada impuesto son marcadamente diferentes y dependen de diversos aspectos de las instituciones laborales y tributarias. Los impuestos a la nómina reducen el empleo e incrementan los costos laborales cuando sus beneficios no son valorados por los trabajadores; pero cuando son valorados pueden elevar la participación laboral sin incrementar los costos laborales. Los impuestos al valor agregado aumentan la informalidad y reducen la demanda de fuerza de trabajo calificada. En contraste, los impuestos a la renta de las empresas pueden ayudar a reducir la informalidad, especialmente entre trabajadores con bajo nivel educativo; sin embargo, cuando las capacidades de administración tributaria son fuertes, estos impuestos pueden reducir la participación laboral y el empleo de trabajadores de nivel educativo medio y avanzado.

Keywords: VAT; payroll tax; corporate income tax; employment; informality; wages; Latin America (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Employment and Taxes in Latin America: An Empirical Study of the Effects of Payroll, Corporate Income and Value-Added Taxes on Labor Outcomes (2012)
Working Paper: Employment and Taxes in Latin America: An Empirical Study of the Effects of Payroll, Corporate Income and Value-Added Taxes on Labor Outcomes (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000093:013975

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