The (In)effectiveness of Targeted Payroll Tax Reductions

Alessandra Fenizia (), Nicholas Y. Li () and Luca Citino ()
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Alessandra Fenizia: George Washington University
Nicholas Y. Li: George Washington University
Luca Citino: Bank of Italy

No 18233, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies the cost-effectiveness of targeted payroll taxes for stimulating labor demand. It uses rich administrative data to study the effects of an Italian reform that raised social security contributions for apprenticeship contracts but granted a substantial discount for firms with 9 employees or less. The discount does not increase demand for apprenticeship contracts. Instead, it subsidizes inframarginal hiring. This reform is not cost-effective. Point estimates imply that each million euros of foregone social security contributions supports the employment of 29 apprentices for one year and no permanent contracts (these estimates are not statistically different from zero).

Keywords: cost effectiveness; targeted payroll taxes; labor demand (search for similar items in EconPapers)
JEL-codes: H20 J01 J08 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-eur and nep-lab
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