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Value-Added Tax versus Social Security Contributions

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Author Info

  • Laszlo Goerke

    (Universität Konstanz)

Abstract

In order to alleviate unemployment it is often recommended to reduce social security contributions (SSC) and to compensate for the ensuing loss in revenues by a rise in the value-added tax (VAT). Assuming unemployment to be caused by efficiency wages, it is shown that a balanced-budget shift from a payroll tax to a VAT will increase employment if the rise in the VAT does not alter consumer prices. If the effects of a shift from SSC to the VAT on the worker*s effort are neutralized, for example, by imposing a constant wedge, the employment impact will depend on the nature of the unemployment compensation system.

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Bibliographic Info

Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 219 (1999)
Issue (Month): 3+4 (September)
Pages: 308-325

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Handle: RePEc:jns:jbstat:v:219:y:1999:i:3-4:p:308-325

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Related research

Keywords: efficiency wages; social security contributions; unemployment; value-added tax;

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References

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  1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  2. Christopher A. Pissarides, 1997. "The Impact of Employment Tax Cuts on Unemployment and Wages: The Role of Unemployment Benefits and Tax Structure," CEP Discussion Papers dp0361, Centre for Economic Performance, LSE.
  3. Hian Hoon, 1996. "Payroll taxes and VAT in a labor-turnover model of the ‘natural rate’," International Tax and Public Finance, Springer, vol. 3(3), pages 369-383, July.
  4. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
  5. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  6. Lin, Chung-Cheng & Lai, Ching-Chong, 1997. "The Solow Condition in an Efficiency Wage Model with Overtime Work," Australian Economic Papers, Wiley Blackwell, vol. 36(69), pages 342-50, December.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Koskela, Erkki & Schob, Ronnie, 1999. "Alleviating unemployment:: The case for green tax reforms," European Economic Review, Elsevier, vol. 43(9), pages 1723-1746, October.
  9. Zoega, Gylfi, 1997. "Public Consumption and Unemployment," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(3), pages 269-79, August.
  10. Goerke, Laszlo, 1999. "Efficiency Wages and Taxes," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 131-42, June.
  11. Pemberton, James, 1992. "Taxation and Wage Bargaining," The Economic Record, The Economic Society of Australia, vol. 68(203), pages 318-27, December.
  12. Pisauro, Giuseppe, 1991. "The effect of taxes on labour in efficiency wage models," Journal of Public Economics, Elsevier, vol. 46(3), pages 329-345, December.
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Cited by:
  1. Goerke, Laszlo, 2000. "The Wedge," Manchester School, University of Manchester, vol. 68(5), pages 608-23, September.
  2. Pia Weiss, 2001. "How to Finance Unemployment Benefits in an Economy with Search Generated Equilibrium Unemployment," Public Economics 0103001, EconWPA.

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