Impacts of payroll tax relief on formal employment and industrial competitiveness: an approach by the Difference in Differences method with Propensity Score Matching

Abstract

This study aims to measure the effects of the payroll tax exemption policy on formal employment and industrial competitiveness. For this, a wide literature review was inserted in the work, mainly the focus on measurement methods and database. Employment data were collected from the Annual List of Social Information (RAIS, 2020) and for industrial indicators the data available at the National Confederation of Industry (CNI, 2020). For the empirical strategy for assessing the impact of the policy, the model of differences in differences (DID) with Propensity Score Matching (PSM) and the model of triple differences were used. Robustness and sensitivity tests will also be used. Finally, the results pointed to an average effect of 2.44 p. for. and 1.12 p. for. the payroll exemption policy on employment: number of hours worked and number of employment contracts, respectively. This result portrays the comparison between the group of exempted sectors in relation to the non-exempted group. Another important result considered the temporal trend. The effects of the payroll tax exemption policy right at the beginning of the implementation of the law (2012) on employment was, on average, 1.8 p. for. (hours worked) and 1.5 p. for. (bonds), and as the years went by, this effect fell, reaching 0.6 p. for. in 2018. The results on industrial competitiveness, considering that negative values ​​mean that the industry gained competitiveness, only in the window of 2015 and 2016, the estimator proved to be significant and the effect of the payroll tax exemption policy had effects to increase the competitiveness of Brazilian industry: -36.7 p. for. (2015) and -45.2 p. for. (2016).