The (In)Effectiveness of Targeted Payroll Tax Reductions
The (In)Effectiveness of Targeted Payroll Tax Reductions
Authors: Alessandra Fenizia, Nicholas Li, Luca Citino
Abstract: This paper studies the cost-effectiveness of targeted payroll taxes for stimulating labor demand. It uses rich administrative data to study the effects of an Italian reform that raised social security contributions for apprenticeship contracts but granted a substantial discount for firms with 9 employees or less. The discount does not increase demand for apprenticeship contracts. Instead, it subsidizes inframarginal hiring. This reform is not cost-effective. Point estimates imply that each million euros of foregone social security contributions supports the employment of 29 apprentices for one year and no permanent contracts (these estimates are not statistically different from zero).
Seminar Notes
Venue
WALES 2022
Objective
To understand the role of a change in payroll taxes on employment of young low-wage workers in Italy (apprentices)
Importance
Reduction in payroll taxes suggested as way of increasing employment others argue this just subsidizes firms for employment that would already exist
Background
2007 budget bill in Italy introduces a discontinuity in cost of apprenticeships for firms with 10 or more employees.
Before 2007 fixed weekly contribution. After 2007, 10% of earnings. Passed 12/29/06, effective 1/1/07
Apprenticeship contracts: for workers age<30. Training
Data & Key Variables
Italian social security records
Matched employer-employee data 2004-2011
Methodology
Difference-in-differences comparing big and small firms
Results
Increase in hiring of apprentices after change in payroll tax.
No impact on net earnings
Additional 2.86 apprentice positions per firm
Key Table/Figure
