Attila Lindner: The Impact of Payroll Tax Subsidies:Theory and Evidence
We study the employment and wage effects of age-dependent payroll tax subsidies for both younger (under 25) and older (over 55) workers using a policy change in Hungary. Using rich administrative data and a difference-in-differences strategy, we find that employment increases in both age groups as a result of the payroll tax cut, but the effects differ by job and firm characteristics. Employment of older workers mostly increases in blue collar jobs and at less productive and lower-quality firms. On the other hand, employment of older workers at more productive and higher-quality firms is unaffected, but their wages increase in response to the tax cut. We explain these findings using an equilibrium job search model with heterogeneous firms and workers. In the model, more productive firms hire skilled workers by poaching them from other firms. Tax reduction for these firms mainly increase worker’s wages, while employment is not affected. On the other hand, low-productivity firms, which tend to hire from unemployment, mainly react to the tax subsidy by increasing employment and the effect on wages is limited. These results point to important heterogeneity in the incidence of payroll tax subsidies by firm and worker types: the incidence mainly falls on low-productivity firms, and higher-skilled workers.
Date: 9 November 2021, 16:00 (Tuesday, 5th week, Michaelmas 2021)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room A or Online
Speaker: Attila Lindner (University College London)
Organising department: Department of Economics
Part of: Applied Microeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Emma Heritage