Payroll taxes, firm behavior, and rent sharing: Evidence from a young workers' tax cut in Sweden

Abstract

This paper uses administrative data to analyze a large employer-borne payroll tax rate cut for young workers in Sweden. We fnd no effect on net-of-tax wages of young treated workers relative to slightly older untreated workers, and a 2-3 percentage point increase in youth employment. Firms employing many young workers receive a larger tax windfall and expand right after the reform: employment, capital, sales, and profts increase. These effects appear stronger in credit-constrained frms. Youth-intensive frms also increase the wages of all their workers collectively, young as well as old, consistent with rent sharing of the tax windfall.