The Role of Payroll Tax Incentives on Youth Employment and Wages: Evidence from Italy [New Draft Available Soon!]
Youth unemployment and job instability remain pressing concerns across Europe. Payroll tax incentives are widely used to stimulate youth employment, yet their effectiveness in promoting stable and high-quality jobs is less well understood. This paper studies a large and long-lasting payroll tax cut introduced in Italy in 2018, which reduced employer social security contributions for firms hiring workers under-35 on permanent contracts. Using matched employer–employee administrative data, we estimate the effects of the policy through an event-study and a difference-in-differences design that exploits variation in workers' age eligibility and firms’ pre-policy exposure to eligible workers. The reform significantly increased the share of young permanent hires, while temporary hires also rose, consistent with an option-value mechanism. Overall, the probability of obtaining a stable job increased for young workers, who transitioned to permanent employment more quickly. At the firm level, the incentive led to expansion and higher wages for both young and older employees. Firms grew in sales and profits, although this growth was driven more by workforce and input accumulation than by productivity gains. Taken together, the results suggest that targeted payroll tax cuts can increase job stability and stimulate firm growth, even in the absence of immediate efficiency improvements.
Economic Transfers to Young Voters
I use administrative data to examine the electoral effects of economic transfers targeted at young voters. I exploit quasi-exogenous local variation in exposure to a lump-sum conditional transfer for cultural consumption introduced in Italy in 2016 by the Democratic Party. The policy granted the transfer to all individuals upon turning eighteen years old. I document that a one standard deviation increase in the share of eligible recipients leads to a 0.12 standard deviation increase in the incumbent party's vote share in the subsequent national elections. A similar, though slightly smaller, effect (0.1 s.d.) is observed in local elections. However, I find no evidence that the transfer affected voter turnout—neither at the national nor the local level. The effect on voters' preferences persists in the long run, even after the incumbent party loses power. These findings suggest that while lump-sum transfers may generate modest electoral gains for the incumbent, they are largely ineffective in boosting political participation when targeted at young voters.
Young Mayors and Public Spending