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Does Payroll Tax Affect Firm Behaviour?
Author(s) -
Ralston Ben
Publication year - 2020
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/1759-3441.12251
Subject(s) - payroll , remuneration , payroll tax , labour economics , business , monetary economics , ad valorem tax , economics , tax credit , indirect tax , affect (linguistics) , tax reform , income tax , accounting , public economics , finance , linguistics , philosophy
Payroll tax is applied to the total remuneration expenditure of a firm. Once the total remuneration exceeds a certain threshold, the firm is subject to a marginal tax called payroll tax. In a perverse way, the threshold could discourage some firms from growing so that payroll tax is avoided. This paper uses administrative business income tax data to determine whether payroll tax affects the behaviour of businesses. It is found that in general, firms do not bunch just below the payroll tax threshold and firms do not attempt to avoid payroll tax by hiring contractors.