https://macropaperwarehouse.com/authors/luca-citino/Luca CitinoHugo -- gohugo.ioen-usThu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/the-ineffectiveness-of-targeted-payroll-tax-reductions/Thu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/the-ineffectiveness-of-targeted-payroll-tax-reductions/<p>This paper studies the cost-effectiveness of targeted payroll tax reductions as a tool for stimulating labor demand among marginalized workers, using a natural experiment from Italy. The motivation is policy-relevant: governments routinely deploy targeted payroll tax cuts to combat youth and low-skill unemployment, but such subsidies risk subsidizing inframarginal hiring — employment that would have occurred without the incentive — rather than creating net new jobs. Rigorous evaluation requires two features that are rarely satisfied simultaneously: (1) the subsidy must target genuinely marginalized workers so estimates pertain to the population of interest, and (2) variation in incentives across firms must be quasi-random so firm responses are causally identified. This paper exploits a policy that satisfies both.</p>