Ragnhild Schreiner: Do place-based tax incentives create jobs?
OFS-seminar. Ragnhild Schreiner is a Postdoctoral Research Fellow at University College London. Ragnhild Schreiner will present the paper "Do place-based tax incentives create jobs? " co-authored by Hyejin Ku and Uta Schönberg.
Large and persistent disparities in regional employment is a main driver of inequality in income and wellbeing. To reduce these regional inequalities, programs of geographically differentiated payroll taxes have been implemented in certain countries. In this paper, we evaluate the effectiveness of such programs 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 local labor market developments, and created arguably exogenous variation in the payroll tax rates that firms in different regions faced over time. Our key finding is that the increase in regional payroll taxes only to a small extent is shifted onto workers through wage decreases. Instead, firms respond to the cost increase by reducing their demand for labor. Our findings indicate that place-based tax incentives can be effective in stimulating local employment in settings characterized by rigid wage setting (through centralized bargaining).