Journal of the European Economic Association · 2021 · 58 citations · 32 references
Optimal TaxationCorporate TaxLawPayroll TaxesProductivityPayroll Tax VariationQuasi-experimental VariationTax IncentiveCorporate TaxationEconomic AnalysisTax PolicyTax LawEconomicsBlack BoxLabor EconomicsTax AvoidanceFirm-level ProductionPayroll Tax RatesFederal Income TaxFederal TaxBusinessLabor Market ImpactUnemployment
Abstract This paper uses quasi-experimental variation in payroll tax rates in Finland to 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-level earnings. As payroll taxes increase, firms substitute away from low-skilled, routine, and manual workers. Higher firm-level payroll tax rates also slightly decrease the total output of firms. Our results imply that firm-level production and input factor choices are clearly affected by payroll taxes.
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