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NATIONAL BUREAU OF ECONOMIC RESEARCH
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Do Place-Based Tax Incentives Create Jobs?

Hyejin Ku, Uta Schönberg, Ragnhild C. Schreiner

NBER Working Paper No. 25115
Issued in September 2018, Revised in November 2019
NBER Program(s):Labor Studies, Public Economics

In this paper, we evaluate the effectiveness of place-based payroll taxes 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 regional labor market developments, creating arguably exogenous variation in the payroll tax rates that firms in different local labor markets faced over time. We find evidence of partial shifting of payroll tax increases on to worker wages as well as a significant decline in local employment. These findings suggest that in settings with some degrees of wage rigidity, place-based payroll tax incentives can be effective in stimulating local employment.

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Document Object Identifier (DOI): 10.3386/w25115

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