Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production

Youssef Benzarti; Jarkko Harju

doi:10.1093/jeea/jvab010

Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production

Youssef Benzarti, Jarkko Harju

Business Studies

Research output: Contribution to journal › Article › Scientific › peer-review

25 Citations (Scopus)

16 Downloads (Pure)

Abstract

This paper uses quasi-experimental variation in payroll tax rates in Finland to investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee-level earnings. As payroll taxes increase, firms substitute away from low-skilled, routine, and manual workers. Higher firm-level payroll tax rates also slightly decrease the total output of firms. Our results imply that firm-level production and input factor choices are clearly affected by payroll taxes.

Original language	English
Pages (from-to)	2737-2764
Number of pages	28
Journal	JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION
Volume	19
Issue number	5
DOIs	https://doi.org/10.1093/jeea/jvab010
Publication status	Published - 2021
Publication type	A1 Journal article-refereed

Publication forum classification

Publication forum level 3

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)

Access to Document

10.1093/jeea/jvab010

Payroll tax Journal of European
This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited
Accepted author manuscript, 6.33 MBLicence: Unspecified

https://urn.fi/URN:NBN:fi:tuni-202302142359Licence: Unspecified

Cite this

@article{6301d25136d54856847de1ab51bafaac,

title = "Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production",

abstract = "This paper uses quasi-experimental variation in payroll tax rates in Finland to investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee-level earnings. As payroll taxes increase, firms substitute away from low-skilled, routine, and manual workers. Higher firm-level payroll tax rates also slightly decrease the total output of firms. Our results imply that firm-level production and input factor choices are clearly affected by payroll taxes. ",

author = "Youssef Benzarti and Jarkko Harju",

note = "Funding Information: We are grateful to Alan Auerbach, Essi Eerola, Jonathan Goupille-Lebret, Emiliano Huet-Vaughn, Kristiina Huttunen, Tomi Kyyr?, Markku Lehmus, Tuomas Matikka, Pascual Restrepo, Emmanuel Saez, Monica Singhal, Tuomas Pekkarinen, Alisa Tazhitdinova, Janne Tukiainen, Gabriel Zucman, and the seminar audiences at the National Tax Association, IIPF, University of Mannheim, University of Turku, SoCCAM, ENS Lyon, University of Chicago-Harris, University of South Carolina, UC Berkeley, and three anonymous referees for their helpful comments and suggestions. Benzarti is a Faculty Research Fellow at NBER. Harju is a Research Fellow at CESifo. Publisher Copyright: {\textcopyright} The Author(s) 2021.",

year = "2021",

doi = "10.1093/jeea/jvab010",

language = "English",

volume = "19",

pages = "2737--2764",

journal = "JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION",

issn = "1542-4766",

publisher = "Wiley",

number = "5",

}

TY - JOUR

T1 - Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production

AU - Benzarti, Youssef

AU - Harju, Jarkko

N1 - Funding Information: We are grateful to Alan Auerbach, Essi Eerola, Jonathan Goupille-Lebret, Emiliano Huet-Vaughn, Kristiina Huttunen, Tomi Kyyr?, Markku Lehmus, Tuomas Matikka, Pascual Restrepo, Emmanuel Saez, Monica Singhal, Tuomas Pekkarinen, Alisa Tazhitdinova, Janne Tukiainen, Gabriel Zucman, and the seminar audiences at the National Tax Association, IIPF, University of Mannheim, University of Turku, SoCCAM, ENS Lyon, University of Chicago-Harris, University of South Carolina, UC Berkeley, and three anonymous referees for their helpful comments and suggestions. Benzarti is a Faculty Research Fellow at NBER. Harju is a Research Fellow at CESifo. Publisher Copyright: © The Author(s) 2021.

PY - 2021

Y1 - 2021

N2 - This paper uses quasi-experimental variation in payroll tax rates in Finland to investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee-level earnings. As payroll taxes increase, firms substitute away from low-skilled, routine, and manual workers. Higher firm-level payroll tax rates also slightly decrease the total output of firms. Our results imply that firm-level production and input factor choices are clearly affected by payroll taxes.

AB - This paper uses quasi-experimental variation in payroll tax rates in Finland to investigate how firms use their input factors. We find that higher payroll tax rates lead to large employment responses and have no effects on employee-level earnings. As payroll taxes increase, firms substitute away from low-skilled, routine, and manual workers. Higher firm-level payroll tax rates also slightly decrease the total output of firms. Our results imply that firm-level production and input factor choices are clearly affected by payroll taxes.

U2 - 10.1093/jeea/jvab010

DO - 10.1093/jeea/jvab010

M3 - Article

SN - 1542-4766

VL - 19

SP - 2737

EP - 2764

JO - JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION

JF - JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION

IS - 5

ER -

Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production

Abstract

Publication forum classification

ASJC Scopus subject areas

Access to Document

Fingerprint

Cite this