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Does Mandating Social Insurance Affect Entrepreneurial Activity?

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  • Youssef Benzarti
  • Jarkko Harju
  • Tuomas Matikka

Abstract

This paper estimates the effect of relaxing the social insurance mandate on entrepreneurial activity. We use a unique discontinuity in Finland that allows certain entrepreneurs not to pay social insurance contributions on their income. Using rich administrative data, we find that relaxing the social insurance mandate leads entrepreneurs to significantly reduce their contributions, which they channel instead into their firms. While young firms use this windfall to increase business activity, older ones use it to improve their net lending position by purchasing stocks. Our results imply that the social insurance mandate is binding and its efficiency cost is heterogeneous.

Suggested Citation

  • Youssef Benzarti & Jarkko Harju & Tuomas Matikka, 2019. "Does Mandating Social Insurance Affect Entrepreneurial Activity?," NBER Working Papers 25651, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25651
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    Cited by:

    1. Benzarti, Youssef & Harju, Jarkko, 2021. "Can payroll tax cuts help firms during recessions?," Journal of Public Economics, Elsevier, vol. 200(C).
    2. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    3. Ander Iraizoz, 2020. "Saving for retirement through the public pension system: Evidence from the self-employed in Spain," Working Papers halshs-02948136, HAL.
    4. Li, Rui & Zhu, Zhikai & Wang, Xiaoyan, 2023. "Pension insurance contributions and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).
    5. Enrico Rubolino, 2022. "Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy," CESifo Working Paper Series 9671, CESifo.
    6. Schoukens, Paul & Weber, Enzo, 2020. "Unemployment insurance for the self-employed: a way forward post-corona," IAB-Discussion Paper 202032, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    7. Ander Iraizoz, 2020. "Saving for retirement through the public pension system: Evidence from the self-employed in Spain," PSE Working Papers halshs-02948136, HAL.
    8. Harju, Jarkko & Koivisto, Aliisa & Matikka, Tuomas, 2022. "The effects of corporate taxes on small firms," Journal of Public Economics, Elsevier, vol. 212(C).
    9. Enrico Rubolino, 2022. "Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy," Cahiers de Recherches Economiques du Département d'économie 22.01, Université de Lausanne, Faculté des HEC, Département d’économie.
    10. Zhao, Xiaoyang & Weng, Zongyuan, 2024. "Digital dividend or divide: The digital economy and urban entrepreneurial activity," Socio-Economic Planning Sciences, Elsevier, vol. 93(C).

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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