Estimating the Impacts of Payroll Taxes: Evidence from Canadian Employer-Employee Tax Data

39 Pages Posted: 2 Jul 2018

See all articles by Jonathan Deslauriers

Jonathan Deslauriers

HEC Montreal

Benoit Dostie

HEC Montreal - Institute of Applied Economics; IZA Institute of Labor Economics

Robert Gagné

HEC Montreal - Institute of Applied Economics

Jonathan Paré

HEC Montreal

Abstract

In this paper, we use linked employer-employee administrative tax data from Canada to estimate the impact of payroll taxes on a variety of firms and workers outcomes. At the firm level, we use geographic and time variations in tax rates to identify the effect of payroll taxes on wage growth at the worker level.For one province, we exploit a clean overtime change in the payroll tax rate to estimate its impact on the firm's level of employment, average wage and productivity, with difference-in-differences models, taking into account firm-level unobserved heterogeneity. Additionally, taking advantage of the nature of linked data, we estimate wage equations with both fixed worker and firm fixed effects. We find no impact on employment, productivity and profits, but significant impacts on wages, implying that payroll taxes are passed almost entirely to workers in the form of lower wages.

Keywords: payroll taxes, wages, productivity, employment, linked employer-employee data

JEL Classification: E62, J21, L25

Suggested Citation

Deslauriers, Jonathan and Dostie, Benoit and Gagné, Robert and Paré, Jonathan, Estimating the Impacts of Payroll Taxes: Evidence from Canadian Employer-Employee Tax Data. IZA Discussion Paper No. 11598, Available at SSRN: https://ssrn.com/abstract=3205885

Jonathan Deslauriers (Contact Author)

HEC Montreal

3000, Chemin de la Côte-Sainte-Catherine
Montreal
Canada

Benoit Dostie

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada
514-340-6453 (Phone)
514-340-6469 (Fax)

HOME PAGE: http://www.hec.ca/profs/benoit.dostie.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Robert Gagné

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

Jonathan Paré

HEC Montreal

3000, Chemin de la Côte-Sainte-Catherine
Montreal
Canada

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