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Can Payroll Tax Cuts Help Firms During Recessions?

Youssef Benzarti () and Jarkko Harju ()

No 27485, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper estimates the effect of payroll tax cuts on firm activity during economic downturns. We use two regional payroll tax cuts in Finland as well as the onset of the Great Recession to estimate the effect of the recession on firms treated by the payroll tax cuts compared to a similar control group. When implemented, prior to the Great Recession, we estimate that the payroll tax cuts had limited effects on firms located in the treated regions. However, when the recession starts, some of its negative effects were substantially hampered by the previously enacted payroll tax cuts in treated firms. These effects are exacerbated for men and low-skilled employees. We also find that sales and profits in treated firms respond differently in treated firms during the recession. This shows that payroll tax cuts can make firms more resilient during downturns.

JEL-codes: H20 H22 H23 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: PE
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Published as Benzarti, Youssef & Harju, Jarkko, 2021. "Can payroll tax cuts help firms during recessions?," Journal of Public Economics, Elsevier, vol. 200(C).

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Journal Article: Can payroll tax cuts help firms during recessions? (2021) Downloads
Working Paper: Can Payroll Tax Cuts Help Firms during Recessions? (2021) Downloads
Working Paper: Can Payroll Tax Cuts Help Firms During Recessions? (2021) Downloads
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