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Evaluating regional cuts in the payroll tax from a firm perspective

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  • Jonas MÃ¥nsson
  • Shahid Quoreshi

Abstract

Cuts in payrolls taxes as a regional support measure is used throughout Europe. In this study we address some of the shortcomings in previous evaluations. A first shortcoming concerns expected outcomes. Most evaluation focus employment impacts and there are from previous research few indications that this type of support have any impacts on employment. In this paper on the impacts of the Swedish support we address this type of support from a firm perspective, i.e. what impacts can be expected for/in the firm? From the theory and business logic we claim that support given to a firm can be used to whatever the firm finds most suitable. Therefore, evaluating on employment impacts is a rather narrow focus. We extend the analysis to cover impacts on turn-over, employment, wages, investments, long run debts and profits. A second short coming is the time horizon. Most evaluations evaluate the impacts of payroll tax cuts with a few years after the support was launched. In our evaluation the support was launched in 2001 and we follow firms until 2009 which gives us the possibility to monitor the impact development over an 8 year period. Finally, we propose a method to be used when evaluating regional policy. Our results indicates that a between 20-55 percent in the variation in our outcome variables can in fact be explained by municipality characteristics, e.g. the composition of population and its characteristics, regional growth, etc. Further, the result from the evaluation follows a clear business logic: In the short run profits increase and the turn-over increased. The increase profits are later used to increase wages (including owners wages). Later on in the observation period (after 7 years) we find indication on impacts on investments. As in previous we do not find any significant impacts on employment. However, from a policy perspective we conclude that the support has some short term impacts that are reduced with time and the long term impacts are questionable.

Suggested Citation

  • Jonas MÃ¥nsson & Shahid Quoreshi, 2012. "Evaluating regional cuts in the payroll tax from a firm perspective," ERSA conference papers ersa12p567, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa12p567
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    References listed on IDEAS

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    Cited by:

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    2. Mattsson, Pontus, 2019. "The impact of labour subsidies on total factor productivity and profit per employee," Economic Analysis and Policy, Elsevier, vol. 62(C), pages 325-341.
    3. Manelici, Isabela & Pantea, Smaranda, 2021. "Industrial policy at work: Evidence from Romania’s income tax break for workers in IT," European Economic Review, Elsevier, vol. 133(C).

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    JEL classification:

    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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