TY  - JOUR
AU  - Kugler,Adriana
AU  - Kugler,Maurice
TI  - Labor Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13855
PY  - 2008
Y2  - March 2008
UR  - http://www.nber.org/papers/w13855
L1  - http://www.nber.org/papers/w13855.pdf
N1  - Author contact info:
Adriana D. Kugler
Georgetown University
Georgetown Public Policy Institute
37th and O Streets NW, Suite 311
Washington, DC 20057
Tel: 202/687-5716
Fax: 202/687-5544
E-Mail: ak659@georgetown.edu

Maurice Kugler
JFK School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-0897
Fax: 617/496-8753
E-Mail: maurice.kugler@gmail.com
AB  - We use a panel of manufacturing plants from Colombia to analyze how the rise in payroll tax rates over the 1980s and 1990s 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 in Colombia.  Because the costs of taxation are only partly shifted from employers to employees, employment also falls.  Our results indicate that a 10% increase in payroll taxes lowered formal employment by between 4% and 5%.  In addition, we find some evidence of less shifting and larger disemployment effects for production than for non-production workers.  These results suggest that policies aimed at boosting the relative demand of less-skill workers by reducing social security taxes may be effective in Latin American countries, where minimum wages bind and benefits are often not directly linked to contributions.
ER  -