Maximiliano Lauletta, Economics
Informal employment accounts for a substantial share of total employment in developing countries, and payroll taxes have been pointed out as a relevant factor that contributes to labor informality. This paper studies the incidence of payroll taxes on labor market informality exploiting policy changes in Argentina in the 1990s, which introduced payroll tax cuts for a group of production sectors, leaving other sectors unaffected. Using labor market survey data, I implement a difference-in-differences approach comparing workers in sectors that received the payroll tax cut to workers in sectors that did not. Results show a significant reduction in informality among workers in targeted sectors. Specifically, a 10 percentage point reduction in payroll taxes reduces the rate of informal workers by 1.5 percentage points.