Payroll tax exemption in Brazil: a policy to transfer income to privileged economic sectors

Abstract

This article analyzes the payroll tax exemption policy for various economic sectors, which began in 2012 and has been maintained ever since. After briefly reviewing the literature on the subject and describing the current state of debates in the National Congress, the impacts of this policy on the labor market are analyzed. The evidence showed that the promised effects of the exemption on the labor market did not materialize, since the level of employment did not grow in most of the sectors that benefited. Moreover, the competitiveness of the Brazilian economy did not change as a result of this government program. In parallel, there were significant losses in social security revenue, which reinforced the recurring imbalances in the federal government's fiscal result.