Permanent exemption from payroll taxes: The role of hiring frictions
(2026) , 65 pages
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- Abstract
- Belgium’s 2016 payroll tax exemption for first-time employers triggered a sharp increase in firms hiring their first worker but little growth among larger firms. To account for this pattern, we develop and estimate a directed search model—with discrete hiring, firm heterogeneity, and endogenous entry—using Belgian microdata. The exemption reduces the high marginal cost of the first hire, enabling many previously non-hiring entrepreneurs to become employers, but most lack the productivity needed to expand beyond one worker. The model matches the post-reform size distribution and identifies the conditions under which size-dependent hiring subsidies can foster sustained firm growth.
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Citations
Sam Desiere, Oikonomou, R., Tiziano Toniolo, Bruno Van der Linden, & Gert Bijnens. (2026). Permanent exemption from payroll taxes: The role of hiring frictions (LIDAM Discussion Paper IRES/2026/03). https://hdl.handle.net/2078.5/271098