Exploring the Relationship Between Tax Burdens and Job Creation: An Analysis of Three Sectors in Brazil

Fiscal theory suggests that taxes and levies that directly raise the cost of labor can have an impact on the employment rate. Previous studies have explored the effect of corporate taxation on the employment rate and have found a significant short- and long-run relationship between tax revenues and the employment rate. Our research investigates the relationship between job creation and the reduction of tax burdens through tax planning in the three most numerically representative sectors of companies listed in [B]3. Unlike most previous research that typically uses macroeconomic data, the tests were conducted using accounting data. The primary analysis used quantile regression, covering 2011 to 2019. Our findings suggest that reducing the tax burden does not necessarily lead to an expansion of employment. Moreover, the relationship between the effective tax rate and employment rate is unclear, as a positive and negative relationship in the association between effective tax rates and employment generation rates were found in some specific sectors. Specifically, companies in the industrial goods sector reduced their tax burden, but this reduction did not result in an increase in jobs. However, firms in the cyclical consumption sector experienced an increase in their labor force following the reduction in the tax burden. Only companies in the public utility sector, located in the median amount of the distribution, reduced their tax burdens and experienced an increase in the number of jobs. Understanding the link between tax policies and labor market conditions offers valuable insights into their interconnectedness and overall economic impact.