Labour Market Effects of a Payroll Tax Cut for Women in Italy

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• Department of Economics

This paper studies the labour market effects of a large employer-borne payroll tax cut for unemployed women, introduced in Italy since 2013. I combine social security data with several empirical approaches, leveraging the time-limited application of the tax scheme and discontinuities in eligibility criteria across municipalities, cohorts, and occupations. I find that the payroll tax cut generates long-lasting growth in female employment, reduces the time spent on welfare, and spurs business growth, without crowding out male employment. By contrast, the tax cut does not raise net wages, suggesting that tax incidence is mostly on firms, and has a small impact on average job duration. A cost-benefit analysis implies that the net cost of the policy is only 12 percent of the budgetary cost. These findings suggest that employer-borne payroll tax cuts are an efficient strategy to raise demand for female labour and tackle the gender employment gap, but they are not sufficient for closing the gender pay gap.