Labor market institutions and the incidence of payroll taxation

Jinyoung Kim, Seonghoon Kim and Kanghyock Koh

Journal of Public Economics, 2022, vol. 209, issue C

Abstract: Despite the unambiguous predictions of the canonical model of a competitive labor market, empirical studies of the labor market effects of payroll taxation provide conflicting evidence. We estimate the labor market impacts of payroll taxation in Singapore, the country with the most competitive and flexible labor market among the countries investigated in the literature. By exploiting the sharp reduction in payroll tax rate when workers turn 60, we find that the reduced payroll tax rate in Singapore has a large effect on wages without changes in employment. Our meta-analysis shows consistent evidence that varying degrees of labor market competitiveness across places and time could explain the mixed results in the literature. Our findings corroborate the prediction of the canonical model that the welfare costs of social insurance programs financed by payroll taxes can be small in a competitive labor market.

Keywords: Payroll tax; Labor market outcomes; Tax incidence; Regression discontinuity design; Meta-analysis; Labor market competitiveness (search for similar items in EconPapers)
JEL-codes: H24 I31 J22 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Labor Market Institutions and the Incidence of Payroll Taxation (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:209:y:2022:i:c:s0047272722000482

DOI: 10.1016/j.jpubeco.2022.104646

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