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Value-added Tax versus Social Security Contributions

Author

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  • Goerke, Laszlo

    (IAAEU, University of Trier)

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 neutralised, for example, by imposing a constant wedge, the employment impact will depend on the nature of the unemployment compensation system.

Suggested Citation

  • Goerke, Laszlo, 1999. "Value-added Tax versus Social Security Contributions," IZA Discussion Papers 55, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp55
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    References listed on IDEAS

    as
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    Cited by:

    1. Pia Weiss, 2001. "How to Finance Unemployment Benefits in an Economy with Search Generated Equilibrium Unemployment," Public Economics 0103001, University Library of Munich, Germany.
    2. Laszlo Goerke, 2000. "The Wedge," Manchester School, University of Manchester, vol. 68(5), pages 608-623, September.

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    More about this item

    Keywords

    Efficiency wages; social security contributions; unemployment; value-added tax;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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