The University of Southampton
University of Southampton Institutional Repository

The labor market effects of payroll taxes in a middle-income country: evidence from Colombia

The labor market effects of payroll taxes in a middle-income country: evidence from Colombia
The labor market effects of payroll taxes in a middle-income country: evidence from Colombia
We use a panel of manufacturing plants from Colombia to analyze how the rise in payroll tax rates over the 1980’s and 1990’s affected the labor market. Our estimates indicate that formal wages fall by between 1.4% and 2.3% as a result of a 10% rise in payroll taxes. This “less-than-full-shifting” is likely to be the result of weak linkages between benefits and taxes and the presence of downward wage rigidities induced by a binding minimum wage in Colombia. Because the costs of taxation are only partly shifted from employers to employees, employment should also fall. Our results indicate that a 10% increase in payroll taxes lowered formal employment by between 4% and 5%. In addition, we find less shifting and larger disemployment effects for production than non-production workers. These results suggest that policies aimed at boosting the relative demand of low-skill workers by reducing social security taxes on those with low earnings may be effective in a country like Colombia, especially if tax cuts are targeted to indirect benefits.
payroll taxes, shifting, wage rigidity, minimum wages
306
University of Southampton
Kugler, Adriana
9ef17e0d-78e2-43ba-b68f-8ef2a526943b
Kugler, Maurice
4c79c98c-1810-4351-bf16-faeec2227e45
Kugler, Adriana
9ef17e0d-78e2-43ba-b68f-8ef2a526943b
Kugler, Maurice
4c79c98c-1810-4351-bf16-faeec2227e45

Kugler, Adriana and Kugler, Maurice (2003) The labor market effects of payroll taxes in a middle-income country: evidence from Colombia (Discussion Papers in Economics and Econometrics, 306) Southampton. University of Southampton

Record type: Monograph (Discussion Paper)

Abstract

We use a panel of manufacturing plants from Colombia to analyze how the rise in payroll tax rates over the 1980’s and 1990’s affected the labor market. Our estimates indicate that formal wages fall by between 1.4% and 2.3% as a result of a 10% rise in payroll taxes. This “less-than-full-shifting” is likely to be the result of weak linkages between benefits and taxes and the presence of downward wage rigidities induced by a binding minimum wage in Colombia. Because the costs of taxation are only partly shifted from employers to employees, employment should also fall. Our results indicate that a 10% increase in payroll taxes lowered formal employment by between 4% and 5%. In addition, we find less shifting and larger disemployment effects for production than non-production workers. These results suggest that policies aimed at boosting the relative demand of low-skill workers by reducing social security taxes on those with low earnings may be effective in a country like Colombia, especially if tax cuts are targeted to indirect benefits.

PDF
0306.pdf - Other
Download (481kB)

More information

Published date: 2003
Keywords: payroll taxes, shifting, wage rigidity, minimum wages

Identifiers

Local EPrints ID: 33492
URI: https://eprints.soton.ac.uk/id/eprint/33492
PURE UUID: 982d87d9-647e-4d68-8c78-1a2ecc4d74ea

Catalogue record

Date deposited: 18 May 2006
Last modified: 17 Jul 2017 15:52

Export record

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of https://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×