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

Youssef Benzarti () and Jarkko Harju ()

No 26640, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses quasi-experimental variation in payroll taxes to estimate their incidence and 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 earnings. As payroll taxes increase, firms substitute away from low-skilled, routine and manual workers towards more productive workers and also reduce investments. Our results imply that, contrary to the canonical tax incidence model, firm-level production and input factor choices are affected by payroll taxes.

JEL-codes: H20 H22 H23 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-lma, nep-pbe and nep-pub
Note: PE AG
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