Does Mandating Social Insurance Affect Entrepreneurial Activity?

Abstract

This paper estimates the effect of relaxing the social insurance mandate on entrepreneurial activity. We use a unique discontinuity in Finland that allows certain entrepreneurs not to pay social insurance contributions on their income. Using rich administrative data, we find that relaxing the social insurance mandate leads entrepreneurs to significantly reduce their contributions, which they channel instead into their firms. While young firms use this windfall to increase business activity, older ones use it to improve their net lending position by purchasing stocks. Our results imply that the social insurance mandate is binding and its efficiency cost is heterogeneous.

Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy

“…The paper connects with studies estimating the incidence of payroll taxes. My nonstandard payroll tax incidence result is consistent with a recent series of empirical works focusing on upper earners in Greece (Saez et al 2012), young workers in Sweden (Saez et al 2019;Saez et al 2021), lower earners hired by small firms in France (Cahuc et al 2019) and workers in Finland (Benzarti et al 2020;Benzarti and Harju 2021a;Benzarti and Harju 2021b). 8 It is also in line with models showing that the unemployed have limited power to influence wage setting (see, e.g., Cahuc et al 2006;Hall and Milgrom 2008).…”

Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy

“…The paper connects with studies estimating the incidence of payroll taxes. My nonstandard payroll tax incidence result is consistent with a recent series of empirical works focusing on upper earners in Greece (Saez et al 2012), young workers in Sweden (Saez et al 2019;Saez et al 2021), lower earners hired by small firms in France (Cahuc et al 2019) and workers in Finland (Benzarti et al 2020;Benzarti and Harju 2021a;Benzarti and Harju 2021b). 8 It is also in line with models showing that the unemployed have limited power to influence wage setting (see, e.g., Cahuc et al 2006;Hall and Milgrom 2008).…”

“…tensively for finding a better match with an industry that would be more specialized in their job task. 28 Columns ( 5)- (6) show that this is not the case: each specification presents full pass-through to firms as in the baseline model.…”

“…Eliciting gender stereotypes from survey data, I show that these effects are mostly concentrated among firms operating in industries where a larger portion of the workforce had conservative gender beliefs. 6 This provides the first empirical evidence that breaking down gender stereotypes improves business performance: a well-known argument to economists since the seminal contribution by Becker (1957). Furthermore, the positive effect of the tax cut on both labor and capital is significantly larger in firms that were liquidity constrained before the reform, suggesting that payroll tax cuts make firms more resilient during downturns by relaxing liquidity constraints (Saez et al 2019;Benzarti and Harju 2021a).…”

The Effects of Corporate Taxes on Small Firms

“…Therefore, learning about the responsiveness of these firms is highly relevant but still relatively understudied, although there are some exceptions (see e.g. Benzarti et al 2020). Our results suggest that firm-level incentives are indeed important for the growth of small firms.…”