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Shifting from Social Security Contributions to Consumption Taxes: The Impact on Low-Income Earner Work Incentives

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  • Alastair Thomas
  • Fidel Picos-Sánchez

Abstract

This paper investigates the merits of increasing work incentives for low-income workers by shifting part of the tax burden from social security contributions (SSC) to consumption taxes (specifically VAT) in 13 European OECD countries. Simulation results based on household budget survey microdata show that such reforms will increase work incentives for low-income workers at both participation and hours-worked margins. However, these increases will generally be small as part of the VAT increase will still be borne by low-income workers. This, combined with difficulty targeting the reforms and potential equity concerns regarding increasing the tax burden on non-workers, suggests that alternate funding sources to a VAT increase should also be considered to fund SSC reductions. Le remplacement des cotisations de sécurité sociale par des impôts sur la consommation : incidence sur l'incitation des salariés titulaires de faibles revenus à travailler Ce document étudie le bien-fondé des mesures prises dans 13 pays européens de l?OCDE pour renforcer l?incitation au travail des salariés à faibles revenus par un transfert partiel de la charge fiscale des cotisations de sécurité sociale (CSS) vers les impôts sur la consommation (plus précisément la TVA). Les résultats de simulations fondées sur des données microéconomiques obtenues à la suite d?enquêtes sur les budgets des ménages montrent que ces réformes renforcent l?incitation des titulaires de faibles revenus à travailler, aussi bien pour ce qui est du choix d?accepter un emploi que du nombre d?heures ouvrées. Cependant, ce renforcement sera généralement faible, dans la mesure où une partie de l?augmentation de la TVA restera à la charge des salariés à faibles revenus. Ce fait, combiné à la difficulté de cibler les réformes et aux problèmes d?équité que risque de poser l?augmentation de la charge fiscale pesant sur des non-salariés, montre qu?il serait préférable de rechercher d?autres sources que la TVA pour financer des réductions des CSS.

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File URL: http://dx.doi.org/10.1787/5k95qw92l521-en
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Taxation Working Papers with number 11.

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Date of creation: 24 Jul 2012
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Handle: RePEc:oec:ctpaaa:11-en

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Related research

Keywords: work incentives; VAT; consumption tax; social security contributions; impôts sur la consommation; incitation à travailler; TVA; cotisations de sécurité sociale;

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Cited by:
  1. Nico Pestel & Eric Sommer, 2013. "Shifting Taxes from Labor to Consumption: Efficient, but Regressive?," SOEPpapers on Multidisciplinary Panel Data Research 624, DIW Berlin, The German Socio-Economic Panel (SOEP).

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