Richard Thompson Ainsworth (Boston University) has posted Will Cutting the Payroll Tax Increase Jobs? (Empirical Evidence from the EU VAT) on SSRN. Here is part of the abstract:

Empirical evidence from the EU suggests that [the 2% employee payroll tax cut in the Tax Relief, Unemployment Insurance Reauthorization, and Jobs Creation Act of 2010 (Pub. l. No. 111-312)] got it right (as between general reductions in the employees’ and employers’ payroll taxes). The evidence gathered in a two-year policy experiment conducted in nine EU Member States also suggests that the CBO estimates of employment gains from employers’ payroll tax cuts cannot be supported (if they are targeted generally).

In addition, EU macro-economic simulations based on these findings also suggest that the best way to use payroll tax incentives to increase employment is to use them to directly reduce the cost of labor. This can be accomplished either (1) under mechanisms used in the HIRE Act or (2) by targeting specific categories of workers (the unemployed) for an employees’ payroll tax cut that would be tethered to (used in conjunction with) an employers’ tax incentive to significantly reduce the cost of labor.

This paper endeavors to bring EU analysis into the US payroll tax debate. Five options are considered:

1. Employers’ payroll tax holiday
2. Employees’ payroll tax holiday
3. Targeted employers’ payroll tax holiday
4. Targeted employees’ payroll tax holiday
5. Tethering an employers’ payroll tax holiday to a targeted employees’ payroll tax holiday