Can Payroll Tax Cuts Help Firms During Recessions?
Youssef Benzarti () and
No 2131, Working Papers from Tampere University, School of Management and Business, Economics
This paper estimates the eﬀect of payroll tax cuts on ﬁrm-level employment and balance-sheet outcomes 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 employment and balance-sheet outcomes of 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 employment 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. We provide some evidence showing that ﬁrms that are liquidity con- strained are the ones that exhibit the strongest response. This shows that payroll tax cuts can make ﬁrms more resilient during downturns, possibly by relaxing liquidity constraints.
JEL-codes: H20 H22 H23 (search for similar items in EconPapers)
Pages: 43 pages
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http://urn.fi/URN:ISBN:978-952-03-1945-8 First version, 2021 (application/pdf)
Working Paper: Can Payroll Tax Cuts Help Firms during Recessions? (2021)
Working Paper: Can Payroll Tax Cuts Help Firms During Recessions? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:2131
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