Wage effects of means-tested transfers: Incidence implications of using firms as intermediaries

This paper shows that how countries disburse tax credits matters for economic incidence. The authors exploit a reform in Argentina that shifted the disbursement of child benefits from employers to the government in a staggered fashion. Using administrative data and an event-study approach, the authors find that employers receive 5 to 13 percent of the transfers through reduced wages when they mediate the payments. This wage effect is more pronounced for low-income workers, particularly new hires, and in smaller and less unionized firms. The authors argue that workers likely misperceived firm disbursed transfers as part of their work compensation, leading to incidence-sharing effects. The findings suggest that relying on firms as intermediaries in the tax-benefit system can have unexpected labor market consequences.