Effect of employment tax incentives: the case of disability quota in Hungary
No 2019_1, CEU Working Papers from Department of Economics, Central European University
This paper evaluates the effect of the Hungarian disability quota - levy system on disabled employment and firm behavior, and also aims to shed light on factors influencing the effectiveness of employment tax incentives. According to the quota rule, firms above a certain size threshold have to employ at least five percent disabled employees or pay a levy in case of non-compliance. The special feature of the Hungarian quota system is the uniquely high levy, which is accompanied by poor labor market integration of the disabled. The estimation exploits two significant policy changes: the drastic raise of the levy in 2010 and the increase of the firm size threshold from 20 to 25 employees in 2012. The policy effect on disabled employment is estimated on firm level data with regression discontinuity design. The baseline RDD results are adjusted to account for the potential bias arising from non-random firm selection, as many firms adjust their size to avoid the quota. The estimated disabled employment effect is high in international comparison, however, almost three-quarter of the quota is not fulfilled. I find evidence that the ratio of disabled population influences the disabled employment effect of the quota. This suggests that low effective labor supply and high (perceived) non-wage costs of hiring disabled are factors behind low quota fulfillment.
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