The Incidence of Payroll Taxation: Evidence from Chile.

The author provides new evidence on the incidence of payroll taxation by examining the experience of Chile before and after the privatization of its Social Security system. This policy change led to a sharp exogenous reduction in the payroll tax burden on Chilean firms; on average, payroll tax rates fell by 25 percent over six years. Using data from a census of manufacturing firms, the author estimates that the incidence of payroll taxation is fully on wages, with no effect on employment. This finding is robust to a variety of empirical approaches to the problem of measurement error in firm-level measures of taxes/worker. Copyright 1997 by University of Chicago Press.