IMPACT OF THE PAYROLL TAX EXEMPTION IN THE BRAZILIAN ECONOMY

The Brazilian Federal Government adopted a payroll tax exemption in 2012, but in 2015 such policy was reviewed and changed by removing part of the exemption over some sectors. This study aims to evaluate the economic impacts of these policies using a computable dynamic and multisectoral general equilibrium model developed for the Brazilian economy. The simulations represent deviations from a baseline scenario for the period 2013-2025. The results show that the exemption policy would imply a cumulative growth impact of 0.34% in GDP, while the new policy leads to a cumulative growth impact of -0.37%. This result is explained by the sectoral distortions resulting from the changes in the exemption policy which increases the cost of payroll in capital-intensive sectors as well as in its production cost, leading to reductions in the aggregated investment rate.