Payroll Taxes and Firm Performance

Abstract

The Swedish employer paid payroll tax was reduced substantially for young workers in 2007, causing firms' average social fees to depend on the age structure of their employees. Using pre-reform conditions to define treated and control firms, we show that the lower costs induced by the reduced taxes have no impact on exit rates or profitability. We find negligible effects on gross investments, and negative, but not statistically significant, effects on labor productivity.

Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden

“…He finds that firms more exposed to the payroll tax cut saw their profits increase. Egebark and Kaunitz (2017b) also analyze the effects of the payroll tax reform on various firm outcomes in 2007 and 2008, they find a positive effect on gross investment but no significant effects on value added per worker and operating profits. Our firm level analysis builds and expands upon these two studies.…”

“…This empirical strategy was first developed by Skedinger (2014) for the retail sector. Egebark and Kaunitz (2017b) also use this strategy to analyze all industries. We build upon these previous contributions by defining narrower but more comparable treatment and control groups.…”

“…In this way, we extend and build upon the previous contributions bySkedinger (2014) and work byEgebark and Kaunitz (2017b), whose firm-level analyses solely report individual level DiD regression results.57 We also investigated effects on the number of workers that appear on the payroll of the firm and effects are similar.…”

“…This empirical strategy was first used bySkedinger (2014), who focused on the retail sector Egebark and Kaunitz (2017b). also use this strategy investigating the broader economy.…”