Employment%20and%20Taxes%20in%20Latin%20America%3A%20An%20Empirical%20Study%20of%20the%20Effects%20of%20Payroll%2C%20Corporate%20Income%20and%20Value%2DAdded%20Taxes%20on%20Labor%20Outcomes

Working Papers

Employment and Taxes in Latin America: An Empirical Study of the Effects of Payroll, Corporate Income and Value-Added Taxes on Labor Outcomes


CODE: IDB-WP-334
AUTHOR(s): Fajardo, Deisy Johanna , Lora, Eduardo
PUBLISHED: September 2012
LANGUAGE: English
RELATED TOPICS: Finance
DOWNLOAD FILE IN: English

Abstract:

This paper empirically explores the effects of payroll taxes, value-added taxes and corporate income taxes on a variety of labor market outcomes such as employment, unemployment, informality, and wages. Using national-level data on labor variables for 15 Latin American countries, the results indicate that the effects of each tax are distinctly different and may depend on several aspects of labor and tax institutions. Payroll taxes reduce employment and increase labor costs when their benefits are not valued by workers, but otherwise increase labor participation and do not raise labor costs. Value-added taxes increase informality and reduce skilled labor demand. In contrast, corporate income taxes may help reduce informality, especially among low-education workers but, when tax enforcement capabilities are strong, may reduce labor participation and employment of medium- and high-education workers.

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