Wage effects of employer-mediated transfers

Santiago Garriga and Dario Tortarolo

No 2020-08, Discussion Papers from Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP)

Abstract: We explore how the way in which tax credits are disbursed affects employer’s behavior, wages, and employment. We exploit a change in the payment system in Argentina that was gradually rolled out between 2003 and 2010. Under the old system, employers were in charge of delivering family allowances to their employees together with the monthly salary, and the transfer was deducted from employer social security contributions. For transparency purposes, the government eliminated the intermediary role of firms and started depositing the transfer directly into workers’ bank accounts. Using employer-employee administrative data and an event-study approach, we show that the way tax credits are disbursed matters for the final economic incidence. Our evidence suggests that employers shift part of the incidence of the transfer by paying lower wages. We document larger wage effects in small and less unionized firms and we do not find evidence of pay equity concerns (e.g., effect mostly driven by new hires rather than incumbent workers). Our findings are therefore in line with the hypothesis that transfers are not all captured dollar for dollar by workers. These results raise questions about the use of employers as intermediaries to disburse the transfer; where less salient schemes may lead to capture by employers.

Keywords: tax credits; family allowances; means-tested transfers; incidence; event study (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-pbe
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Working Paper: Wage Effects of Employer-Mediated Transfers (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notnic:2020-08

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