How Do Firms Respond to Place-Based Tax Incentives?
Link to article:
Ku, H., Schoenberg, U. and Schreiner, R.C.
CReAM discussion paper series CPD 11/18
In this paper, we evaluate the effectiveness of place-based payroll taxes in stimulating local employment by exploiting a unique policy setting in Norway, where a system of geographically differentiated payroll taxes was suddenly abolished due to an EU regulation. The reform was enforced independently of the regional labor market developments, creating arguably exogenous variation in the payroll tax rates that firms in different local labor markets faced over time. We find evidence of partial shifting of payroll tax increases on to worker wages as well as a significant decline in local employment. These findings suggest that in settings with some degrees of wage rigidity, place-based payroll tax incentives can be effective in stimulating local employment.
D22, H25, H32, J18, J23
Payroll taxes, regional tax incentive, firm behavior, labor demand
Project:Oppdragsgiver: NFR via UiO/OFS
Oppdragsgivers prosjektnr.: 267428
Frisch prosjekt: 2107 - Oslo Fiscal Studies - A Centre for Empirical Research in Public Finance