EconPapers    
Economics at your fingertips  
 

Labor Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia

Adriana Kugler and Maurice Kugler ()

Economic Development and Cultural Change, 2009, vol. 57, issue 2, 335-358

Abstract: We use a panel of manufacturing plants from Colombia to analyze how the rise in payroll tax rates over the 1980s and 1990s affected the labor market. Our estimates indicate that formal wages fall by between 1.4% and 2.3% as a result of a 10% rise in payroll taxes. This "less-than-full shifting" is likely to be the result of weak linkages between benefits and taxes and the presence of downward wage rigidities in Colombia. Because the costs of taxation are only partly shifted from employers to employees, employment also falls. Our results indicate that a 10% increase in payroll taxes lowered formal employment by between 4% and 5%. In addition, we find some evidence of less shifting and larger disemployment effects for production than for nonproduction workers. These results suggest that policies aimed at boosting the relative demand of less skilled workers by reducing social security taxes may be effective in Latin American countries, where minimum wages bind and benefits are often not directly linked to contributions. (c) 2009 by The University of Chicago. All rights reserved.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30) Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1086/592839 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Labor Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia (2008) Downloads
Working Paper: Labour Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia (2008) Downloads
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:ucp:ecdecc:v:57:y:2009:i:2:p:335-358

Access Statistics for this article

More articles in Economic Development and Cultural Change from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().

 
Page updated 2020-11-21
Handle: RePEc:ucp:ecdecc:v:57:y:2009:i:2:p:335-358