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Tax Incentives and Older Workers: Evidence from Canada

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  • Guy Lacroix
  • Pierre-Carl Michaud

Abstract

We provide empirical evidence on the effectiveness of a tax measure aimed at increasing the employment rates of older workers in Quebec, Canada. We use several data sources and various identification strategies. First, we use a Quebec-Ontario difference-in-differences design and do not detect robust effects on employment for most age groups except for those aged 60 to 64, but the common trend assumption is found not to hold. For this last group, we use an alternative identification strategy that exploits the variation in treatment intensity over time using longitudinal administrative tax data for Quebec only. Doing so, we do not find any effect on transitions in or out of the labour force. We do find a small positive effect on earnings (intensive margin) but a negative one on the affected workers’ net tax liability. Finally, addressing the invalid comparison with Ontario, we investigate the impact of the credit using a staggered adoption design exploiting differences across cohorts within Quebec. The results are consistent with the alternative approach. We conclude that the tax measure does not appear to be a cost-effective way of raising public revenues nor of increasing the employment rates of older workers. Nous fournissons des preuves empiriques sur l'efficacité d'une mesure fiscale visant à augmenter les taux d'emploi des travailleurs plus âgés au Québec, Canada. Nous utilisons plusieurs sources de données et différentes stratégies d'identification. Tout d'abord, en appliquant la méthode des différences-en-différences entre le Québec et l'Ontario nous ne trouvons pas d'effets robustes sur l'emploi pour la plupart des groupes d'âge, à l'exception de ceux âgés de 60 à 64 ans, mais l'hypothèse de tendance commune ne semble pas être vérifiée. Pour ce dernier groupe, nous utilisons une stratégie d'identification alternative qui exploite la variation de l'intensité du traitement au fil du temps en utilisant les données administratives longitudinales sur les impôts pour le Québec seulement. Ce faisant, nous ne trouvons aucun effet sur les transitions ni d'entrée dans la population active ni de sortie de la population active. Nous constatons néanmoins un léger effet positif sur les revenus (marge intensive) mais un effet négatif sur la charge fiscale nette des travailleurs affectés. Enfin, pour remédier à la comparaison invalide avec l'Ontario, nous étudions l'impact du crédit en utilisant une modélisation «d'adoption échelonnée» (staggered adoption design), exploitant les différences entre les cohortes au sein du Québec. Les résultats sont cohérents avec l'approche alternative. Nous concluons que la mesure fiscale ne semble pas être approche efficiente d'augmenter les revenus de l'État ni d'augmenter les taux d'emploi des travailleurs plus âgés.

Suggested Citation

  • Guy Lacroix & Pierre-Carl Michaud, 2024. "Tax Incentives and Older Workers: Evidence from Canada," CIRANO Working Papers 2024s-06, CIRANO.
  • Handle: RePEc:cir:cirwor:2024s-06
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    File URL: https://cirano.qc.ca/files/publications/2024s-06.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    older workers; labour market participation; tax incentives; travailleurs plus âgés; participation au marché du travail; incitations fiscales;
    All these keywords.

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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