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The macroeconomic effects of social security contributions and benefits

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  • Gechert, Sebastian
  • Paetz, Christoph
  • Villanueva, Paloma

Abstract

A narrative dataset of legislative social security shocks is constructed for Germany. The dataset covers major legal changes in benefits and contributions from 1970 to 2018. We estimate their macroeconomic effects in a proxy SVAR. The GDP response to a cut in contributions yields a fiscal multiplier of about 0.4 on impact that fades relatively quickly. For benefit increases the impact multiplier is 1.1 and more persistent. The response of other macro variables suggests that benefits work through a strong demand-side channel, while contributions exhibit supply-side effects. Combining the shocks with household data confirms a strong consumption response of beneficiaries.

Suggested Citation

  • Gechert, Sebastian & Paetz, Christoph & Villanueva, Paloma, 2021. "The macroeconomic effects of social security contributions and benefits," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 571-584.
    • Handle: RePEc:eee:moneco:v:117:y:2021:i:c:p:571-584
    DOI: 10.1016/j.jmoneco.2020.03.012
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    3. David M. Brasington & Marios Zachariadis, 2022. "Fiscal policy and economic activity: New Causal Evidence," University of Cyprus Working Papers in Economics 09-2022, University of Cyprus Department of Economics.
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    6. Kaplan, Emin Ahmet & Hoş, Zeynep & Güler, Ilkay, 2023. "The effect of social security spending on economic growth in selected EU candidate countries," SEER Journal for Labour and Social Affairs in Eastern Europe, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 26(1), pages 95-110.
    7. Max. A. Mosley & Edmund Cornforth, 2023. "The Macroeconomic Effect of the UK’s 2022 Cost-of-Living Payments," Discussion Papers 2316, Centre for Macroeconomics (CFM).
    8. Dante Souza Cardoso & Laura Barbosa de Carvalho, 2023. "Effects of fiscal consolidation on income inequality: narrative evidence from South America," Empirical Economics, Springer, vol. 64(3), pages 1177-1218, March.
    9. Mosley, Max, 2021. "The importance of being earners: Modelling the implications of changes to welfare contributions on macroeconomic recovery," MPRA Paper 108620, University Library of Munich, Germany.
    10. Dante Cardoso & Laura Carvalho & Gilberto Tadeu Lima & Luiza Nassif-Pires & Fernando Rugitsky & Marina Sanches, 2023. "The Multiplier Effects of Government Expenditures on Social Protection: A Multi-Country Analysis," Working Papers, Department of Economics 2023_11, University of São Paulo (FEA-USP).
    11. Alina Klonowska & Barbara Pawełek, 2022. "What we know and what we do not know about social security finance and macroeconomic stabilization? Evidence from EU countries," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 455-483.
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    More about this item

    Keywords

    Narrative approach; Fiscal multiplier; Social security; MPC Heterogeneity;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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