Ensayos sobre POLÍTICA ECONÓMICA
Print version ISSN 0120-4483
ROZO V, Sandra V. Payroll Taxes in Colombia: a Theoretical Approach. Ens. polit. econ. [online]. 2008, vol.26, n.57, pp. 72-129. ISSN 0120-4483.
This paper analyzes the impact of a reduction in payroll taxes on production and the formal and informal Colombian labor markets. Specifically, two types of scenarios were studied: one in which payroll taxes are reduced keeping everything else constant, and another one, in which this reduction is compensated with higher income taxes such that the government budget constraint remains unchanged. Given that in Colombia there is no available data to conduct an empirical exercise, this document presents a theoretical approach. In particular, it proposes a general equilibrium model for which the endogenous variables are calibrated using the available Colombian data. The results indicate that a reduction in payroll taxes in both scenarios induces higher employment and production levels in the formal sector, and generates the inverse effect in the informal, with a positive effect in the aggregated variables.
Keywords : Nonwage costs; labor market; informality; Colombia.