Labor Market Institutions and the Incidence of Payroll Taxation

33 Pages Posted: 8 May 2021

See all articles by Jinyoung Kim

Jinyoung Kim

Korea University - Department of Economics

Seonghoon Kim

Singapore Management University

Kanghyock Koh

Brown University

Abstract

Despite unambiguous predictions of the canonical model of a competitive labor market, empirical studies on the labor market effects of payroll taxation provide conflicting evidence. Our meta-analysis shows that varying degrees of labor market competitiveness across places and time could be one explanation for the mixed results. We then estimate the labor market impacts of payroll taxation in Singapore, the country with most competitive and flexible labor market among the countries investigated in the literature. By exploiting the sharp reduction in payroll tax rate when workers turn 60, we find that the payroll tax cut in Singapore has a large effect on wages without changes in employment. We provide novel evidence corroborating the canonical model prediction that the welfare costs of social insurance programs financed by payroll taxes can be minimized in a competitive labor market.

JEL Classification: H24, I31, J22

Suggested Citation

Kim, Jinyoung and Kim, Seonghoon and Koh, Kanghyock, Labor Market Institutions and the Incidence of Payroll Taxation. IZA Discussion Paper No. 14321, Available at SSRN: https://ssrn.com/abstract=3841902 or http://dx.doi.org/10.2139/ssrn.3841902

Jinyoung Kim (Contact Author)

Korea University - Department of Economics ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea

Seonghoon Kim

Singapore Management University ( email )

90 Stamford Road
178903
Singapore
68085465 (Phone)
178903 (Fax)

HOME PAGE: http://https://sites.google.com/site/econseonghoon/

Kanghyock Koh

Brown University

No Address Available

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
33
Abstract Views
253
PlumX Metrics