Taxation on wages: evaluating reductions in employers’ and employees’ social security contributions
(2025)
Files
Thesis_Toniolo.pdf
Open Access - Adobe PDF
- 5.8 MB
Details
- Authors
- Supervisors
- Abstract
- This thesis investigates the role of financial incentives in shaping the behaviour of firms and individuals in salaried employment. The first chapter examines a policy in Belgium that reduces the labour cost of hiring a first employee. Using a frictionless general equilibrium model of occupational choice, the chapter finds that this reduction in payroll taxes did not effectively address the challenges firms face when attempting to expand. Furthermore, it shows that general equilibrium effects on wages and aggregate firms’ output are likely to be minimal. The second chapter, using a model with matching frictions, reveals that around one-fifth of firms benefiting from this reduction are not hiring more than one employee due to their low productivity. The remaining firms, which would have hired regardless of the reform, show minimal changes in hiring rates, as payroll taxes have only a limited impact on the marginal cost of attracting an additional job seeker. The third chapter explores the impact of Belgium's Social Work Bonus, a reduction in employees’ social security contribution assigned to low-wage salaried employees. Unlike other in-work benefits based on gross earnings, its wage-rate-based eligibility prevents individuals from reducing working time to qualify. A difference-in-differences estimation identifies a significant increase in the quarterly days worked by young, part-time salaried employees. These three chapters emphasise the importance of targeting the reduction in social security contributions to agents who are most responsive to financial incentives, thereby maximising the employment and working-time effects of public expenditure.
- Affiliations
UCLouvain SSH/LIDAM/IRES - Institut de recherches économiques et sociales
Citations
Toniolo, T. (2025). Taxation on wages: evaluating reductions in employers’ and employees’ social security contributions. https://hdl.handle.net/2078.5/241617