Tax and Transfer Policy Institute Working Paper no. 8/2019

Do payroll tax cuts for Australian firms affect their use of capital and labor?

Author: Omer Majeed and Mathias Sinning


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.

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