E2019008                                        2019-09-23

Do Payroll Tax Cuts for Australian Firms
Affect Their Use of Capital and Labor?∗
Omer Majeed
Australian National University
Mathias Sinning
Australian National University, PKU NSD/CCER, RWI, IZA
 

Abstract：
This paper studies the effects of increases in payroll tax thresholds on wages,employment and capital expenditure in Australia. We use data from the Business Longitudinal Analysis Data Environment (BLADE) and employ a difference-in-differences approach to determine the effect of state-level changes in payroll tax thresholds. Our findings indicate that the effects of numerous increases in state-level payroll tax thresholds between 2006 and 2015, which reduced tax rates from around six to zero percent for small businesses, were insignificant. Our estimates provide no evidence in favor of the hypothesis that a lower payroll tax burden increases wages, employment or capital expenditure. Our results are robust with regards to a range of Placebo tests and sample restrictions.

JEL-Classification: H25, H32, J23, J30

Keywords: Business Taxation, Tax Reform, Labor Demand, Wage Level, Capital Expenditure, Difference-in-Difference Estimation

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