Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy

Abstract

This paper studies the effects of a large employer-borne payroll tax cut for female hires,
introduced in Italy since 2013. Combining administrative data with discontinuities
in eligibility criteria, I find that the tax cut increases female employment and spurs
business performance, especially where gender biases are more severe. By contrast,
the tax cut does not raise workers’ net wages. A cost-benefit analysis implies that
the net cost of the policy is around one-fourth of the budgetary cost. These findings
provide the first empirical evidence that differentiating payroll taxes by gender helps
to reduce the gender employment gap, but not the gender pay gap.

Keywords: gender gap; female employment; payroll tax; tax incidence

JEL Classification: H22; J21; J31