Do payroll tax cuts for Australian firms affect their use of capital and labor?

This paper studies the effects of increases in payroll tax thresholds on wages, employment and capital
expenditure in Australia. We use data from the Business Longitudinal Analysis Data Environment
(BLADE) and employ a difference-in-differences approach to determine the effect of state-level changes in
payroll tax thresholds. Our findings indicate that the effects of numerous increases in state-level payroll
tax thresholds between 2006 and 2015, which reduced tax rates from around six to zero percent for small
businesses, were insignificant. Our estimates provide no evidence in favor of the hypothesis that a lower
payroll tax burden increases wages, employment or capital expenditure. Our results are robust with
regards to a range of Placebo tests and sample restrictions.