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Regional payroll tax cuts and individual wages: Heterogeneous effects across education groups

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  • Hildegunn Stokke

Abstract

The empirical evidence on the incidence of payroll taxation is primarily based on the wage bill of firms. This paper applies matched employer-employee register data on individual wages for all private sector workers in Norway. Exploiting a payroll tax reform and using the difference-in-difference approach, I find that 1% reduction in labor costs generates 0.5% wage increase. Among low educated workers the degree of tax shifting equals 50%, while the wage response for highly educated is insignificant. Lower payroll taxes have limited effects on employment. The findings imply that the absolute value of the labor demand elasticity decreases with the level of education.

Suggested Citation

  • Hildegunn Stokke, 2016. "Regional payroll tax cuts and individual wages: Heterogeneous effects across education groups," ERSA conference papers ersa16p169, European Regional Science Association.
    • Handle: RePEc:wiw:wiwrsa:ersa16p169
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    References listed on IDEAS

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    Cited by:

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    2. Gidehag, Anton, 2019. "Firms’ labor cost savings and recruitment of nonwestern immigrants: The unintended effect of a payroll tax reform," HFI Working Papers 5, Institute of Retail Economics (Handelns Forskningsinstitut).

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    More about this item

    Keywords

    Payroll tax cut; individual wages; heterogeneous effects; education;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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