Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1175: Payroll Taxes and Firm Performance

Niklas Kaunitz () and Johan Egebark ()
Additional contact information
Niklas Kaunitz: Stockholm University
Johan Egebark: Research Institute of Industrial Economics (IFN), Postal: and Arbetsförmedlingen

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.

Keywords: Payroll taxes; Labor costs; Profitability; Labor productivity; Investments; Windfall gain; Tax subsidy; Firm survival

JEL-codes: D22; H22; J38; L25

30 pages, First version: June 20, 2017. Revised: April 13, 2018.

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