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

We show that how countries disburse tax credits matters for economic incidence. We 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, we 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. We argue that workers likely misperceived firm disbursed transfers as part of their work compensation, leading to incidence-sharing effects. Our findings suggest that relying on firms as intermediaries in the tax-benefit system can have unexpected labor market consequences.