Employment and taxes in Latin America: An empirical study of the effects of payroll, corporate income and value-added taxes on labor outcomes

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 participation, employment, informality, and wages. The results are based on nationallevel data of labor variables for 15 Latin American countries, and indicate that the effects of each tax are markedly 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 may increase labor participation and 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 they may reduce labor participation and employment of medium- and high-education workers.

Can International Transfers Be Problematic? Honduran Remittances and Labor Supply Decisions

“…Taxation policy is another option. Recent findings suggest changes in payroll tax rates in Latin America could increase participation rates particularly if entitlement benefits are included (Lora and Fajardo 2012). Even though we find remittance levels to have an insignificant effect on participation rates, a direct tax on remittance reception could still have negative labor supply effects.…”

“…In Table 2 the overall participation mean for all subsamples comes close to the 60.10% participation rate for Honduras cited in Lora and Fajardo (2012). 22 The participation rates are highest for individuals in households without remittances, followed by individuals in remittance households, then individuals receiving remittances directly.…”

Inter-American Dialogue

“…While some assume that the income tax's existence per se encourages informality, the evidence on whether personal income taxes have increased informality in Latin America is mixed (Lora and Fajardo, 2012a); furthermore, the benefits of evasion are diminished in a general equilibrium framework (Alm and Sennoga, 2010), possibly to zero (Alm and Finlay, 2013). Two likely causes of Brazil's persistent informality are that labor productivity has not increased at the same pace as minimum wages and contribution requirements, and that the effective rate on capital is significantly lower than that on labor, which can discourage firms from creating laborintensive employment in the formal sector (Lora and Fajardo, 2012b).…”

Informalidad laboral y elementos para un salario mínimo diferencial por regiones en Colombia

“…Ellos lograron identificar que, por un incremento de 10 pp -similares a los de la ley 100 de 1993-los salarios del sector formal se reducían entre 0,05% y 0,07%. 4 Entre otras causas potenciales de la informalidad estructural -relacionadas con el esquema de incentivos del mercado laboral colombiano-están los impuestos a los ingresos laborales (Lora y Fajardo, 2012), el sistema de protección social en salud (Perry et. al., 2007;Camacho, Cornover y Hoyos, 2013), los costos de despido (Kugler, 1999), la introducción de la Planilla Única (Calderón y Marinescu, 2012), los costos de la educación y los costos efectivos de búsqueda para llenar una vacante o encontrar una ocupación.…”