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Social Security Contributions Distribution and Economic Activity

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  • José L. Torres

    (Department of Economics, University of Málaga)

Abstract

This paper studies the macroeconomic implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a Dynamic General Equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity. Whereas raising the employer?s share increases the labor cost for ?firms and reduces the equilibrium gross wage, conversely, workers? net labor income increases, increasing employment and output. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages? purchasing power.

Suggested Citation

  • José L. Torres, 2020. "Social Security Contributions Distribution and Economic Activity," Working Papers 2020-01, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    • Handle: RePEc:mal:wpaper:2020-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Social Security Contributions; Employees Contributions; Employers Contributions; Dynamic General Equilibrium models;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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