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Reduce Employers' Social Security Contributions And Control Labor Fraud: Remedies For Spain'S Ailing Economy?

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  • Mar�a Teresa �lvarez-Mart�nez
  • Clemente Polo

Abstract

The aim of this paper is to quantify the impact of the reduction on social security contributions (SSCs) of employers recently claimed by the Spanish enterprisers' organizations on the main macroeconomic variables. The effects of this tax reform are evaluated with a Computable General Equilibrium model with the neoclassical closure rule. The model is calibrated with a Social Accounting Matrix for the year 2000 (SAMES-00) elaborated by the authors. Results show that lower SSCs of employers raise employment, households' welfare and real gross domestic product (GDP) but also increase the public deficit. These positive effects remain when the reduction is compensated with personal income taxes to keep the public deficit/GDP ratio constant and also when the compensating variable is value-added tax (VAT). Unlike in previous studies, the most positive effects are obtained when the lower public revenues are compensated via lower coverage of unemployment benefits.

Suggested Citation

  • Mar�a Teresa �lvarez-Mart�nez & Clemente Polo, 2014. "Reduce Employers' Social Security Contributions And Control Labor Fraud: Remedies For Spain'S Ailing Economy?," Economic Systems Research, Taylor & Francis Journals, vol. 26(2), pages 141-154, June.
    • Handle: RePEc:taf:ecsysr:v:26:y:2014:i:2:p:141-154
    DOI: 10.1080/09535314.2014.897218
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    1. Kehoe, Timothy J & Polo, Clemente & Sancho, Ferran, 1995. "An Evaluation of the Performance of an Applied General Equilibrium Model of the Spanish Economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 115-141, June.
    2. Montuenga, Victor & Garcia, Inmaculada & Fernandez, Melchor, 2003. "Wage flexibility: evidence from five EU countries based on the wage curve," Economics Letters, Elsevier, vol. 78(2), pages 169-174, February.
    3. Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2004. "Reducing Social Contributions for Unskilled Labor as a Way of Fighting Unemployment: An Empirical Evaluation for the Case of Spain," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(2), pages 160-185, August.
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    Cited by:

    1. Kurt Kratena & Mark Sommer, 2014. "Labour Market Policy and Environmental Fiscal Devaluation: A Cure for Spain in the Aftermath of the Great Recession?," WIFO Working Papers 476, WIFO.

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