Budget and employment effects of a change in the payroll tax : For the manufacturing sector

Abstract: This thesis is examining the effects of a decrease in the payroll tax and the responding effect on the state budget. The emphasis is on the change in the number of employments for the manufacturing sector as a result of a decrease in the payroll tax. In order to analyze the effect a decrease in payroll tax has on employment, the elasticity of labor demand has been calculated. The result of this regression is significant, and therefore it can be concluded that a change in the payroll tax will have an effect on employment in the manufacturing sector. Since elasticity of labor demand is inelastic, the change in payroll tax will have a small impact on employment. The results of various surveys conducted in other countries are consistent with the findings of this thesis.