Title page 1

Contents 1

Abstract 2

1. Introduction 3

2. The policy 6

3. Data and descriptives 8

4. Empirical strategy 10

4.1. Baseline identification 10

4.2. Identifying assumption 11

5. Effects on average firm performance 12

5.1. Employment 12

5.2. Wage bill 13

5.3. Firm production 15

5.4. Employer quality 16

5.5. The effects for marginal firms 18

5.6. Short-term versus medium-term effects 19

5.7. Validating the identifying assumption 19

6. Conclusion 21

References 23

Appendices 28

A. Background details 28

B. Method details 30

C. Additional empirical results 33

Tables 9

Table 1. Characteristics of start-ups 9

Table 2. Performance of marginal vs. inframarginal firms 18

Table 3. Validation of the identifying assumption: Rejection rates 20

Figures 4

Figure 1. The quarterly flow of new employers 4

Figure 2. Payroll tax rate for the first employee by annual cohort of new employers 8

Figure 3. Employment at entry 13

Figure 4. Employment one year post entry 14

Figure 5. Average wage bill, wage bill per employee and per FTE-employee, one year post entry 14

Figure 6. Effects on average firm production one year post entry 15

Figure 7. Effects on the distribution of firm production 16

Figure 8. Distributional changes in labor productivity 17

Figure 9. Number of employees at entry by quarterly cohorts 21

Appendix Tables 38

Table C.1. Impact of the tax exemption on key outcomes, up to three years post entry 38

Table C.2. RDiT estimates on all annual cohorts: Employment outcomes 41

Table C.3. RDiT estimates on all annual cohorts: Firm production outcomes 42

Table C.4. RDiT estimates on all annual cohorts: Labor productivity measures 43

Table C.5. The placebo effects on growing employers 44

Table C.6. RDiT quarterly estimates 46

Appendix Figures 28

Figure A.1. Median effective payroll tax rate for the first employee of Cohort 2015Q2 and Cohort 2016Q2 28

Figure A.2. Belgian real GDP growth rate, annual and quarterly 29

Figure C.1. Average number of employees, full-time employees, and part-time employees, one year post entry, conditional on survival 33

Figure C.2. Effects on the wage bill distribution 34

Figure C.3. VAT report rate by annual cohort, one year post entry 34

Figure C.4. Probability of quarterly inputs, investment, and labor cost exceeding thresholds, one year post entry 36

Figure C.5. Average productivity by annual cohort 36