Do Place-Based Tax Incentives Create Jobs?

46 Pages Posted: 1 Oct 2018

See all articles by Hyejin Ku

Hyejin Ku

University College London - Department of Economics; University College London - CReAM - Centre for Research and Analysis of Migration; IZA Institute of Labor Economics

Uta Schönberg

University of Rochester; IZA Institute of Labor Economics

Ragnhild Camilla Schreiner

CReAM, Economics Department, UCL

Date Written: September 2018

Abstract

In this paper, we evaluate the effectiveness of place-based payroll taxes in stimulating local employment by exploiting a unique policy setting in Norway, where a system of geographically differentiated payroll taxes was suddenly abolished due to an EU regulation. The reform was enforced independently of the regional labor market developments, creating arguably exogenous variation in the payroll tax rates that firms in different local labor markets faced over time. We find evidence of partial shifting of payroll tax increases on to worker wages as well as a significant decline in local employment. These findings suggest that in settings with some degrees of wage rigidity, place-based payroll tax incentives can be effective in stimulating local employment.

Suggested Citation

Ku, Hyejin and Schönberg, Uta and Schreiner, Ragnhild Camilla, Do Place-Based Tax Incentives Create Jobs? (September 2018). NBER Working Paper No. w25115, Available at SSRN: https://ssrn.com/abstract=3258253

Hyejin Ku (Contact Author)

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

University College London - CReAM - Centre for Research and Analysis of Migration ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

IZA Institute of Labor Economics ( email )

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

Uta Schönberg

University of Rochester ( email )

Rochester, NY 14627
United States

IZA Institute of Labor Economics

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

Ragnhild Camilla Schreiner

CReAM, Economics Department, UCL ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

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