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Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production

Youssef Benzarti () and Jarkko Harju ()

No 138, Working Papers from VATT Institute for Economic Research

Abstract: This paper uses quasi-experimental variation in payroll tax rates in Finland to investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee-level earnings. As payroll taxes increase, firms substitute away from low-skilled, routine and manual workers. Higher firm-level payroll tax rates also slightly decrease the total output of firms. Our results imply that firm-level production and input factor choices are clearly affected by payroll taxes.

Keywords: public economics; payroll taxes; firm behavior; incidence; employment; redistribution; investments; productivity; Sosiaaliturva; verotus ja tulonjako; H20; H22; H23 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-bec
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