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35 Years of Reforms: A Panel Analysis of the Incidence of, and Employee and Employer Responses to, Social Security Contributions in the UK

In: Social Insurance Programs (Trans-Atlantic Public Economics Seminar, TAPES)

Author

Listed:
  • Stuart Adam
  • David Phillips
  • Barra Roantree

Abstract

We examine the effects of employee and employer social security contributions (SSCs) on labor cost, hours of work, and labor cost per hour, using a long running panel dataset that allows us to exploit 35 years of policy reforms in the United Kingdom. We find that reductions in marginal rates of employee – but not employer – SSCs have positive effects on labor cost that operate through hours of work, while labor cost falls much more when average employer SSCs rates are reduced than when average employee SSCs rates are reduced, with most of this differential effect coming through reductions in hourly labor cost. We interpret this as evidence that employees change their hours in response to SSCs, but that in the short- to medium-run at least, the formal incidence of SSCs can matter for their behavioral impacts and economic incidence.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stuart Adam & David Phillips & Barra Roantree, 2016. "35 Years of Reforms: A Panel Analysis of the Incidence of, and Employee and Employer Responses to, Social Security Contributions in the UK," NBER Chapters, in: Social Insurance Programs (Trans-Atlantic Public Economics Seminar, TAPES), National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:13812
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    Cited by:

    1. Arun Advani & Helen Hughson & Andy Summers, 2023. "How much tax do the rich really pay? Evidence from the UK," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 406-437.
    2. Nicole Bosch, 2019. "The Incidence of Pension Contributions," CPB Discussion Paper 388, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Britton, Jack & Gruber, Jonathan, 2020. "Do income contingent student loans reduce labor supply?," Economics of Education Review, Elsevier, vol. 79(C).
    4. Kim, Jinyoung & Kim, Seonghoon & Koh, Kanghyock, 2022. "Labor market institutions and the incidence of payroll taxation," Journal of Public Economics, Elsevier, vol. 209(C).
    5. Stuart Adam & James Browne & David Phillips & Barra Roantree, 2021. "Frictions and taxpayer responses: evidence from bunching at personal tax thresholds," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 612-653, June.
    6. Matthias Collischon & Kamila Cygan-Rehm & Regina T. Riphahn, 2021. "Employment effects of payroll tax subsidies," Small Business Economics, Springer, vol. 57(3), pages 1201-1219, October.
    7. Li, Lixing & Liu, Kevin Zhengcheng & Nie, Zhuo & Xi, Tianyang, 2021. "Evading by any means? VAT enforcement and payroll tax evasion in China," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 770-784.
    8. Roantree, Barra & Kakoulidou, Theoni, 2021. "Options for raising tax revenue in Ireland," Papers BP2022/1, Economic and Social Research Institute (ESRI).
    9. Stuart Adam & Barra Roantree & David Phillips, 2017. "The Incidence of Social Security Contributions in the United Kingdom: Evidence from Discontinuities at Contribution Ceilings," De Economist, Springer, vol. 165(2), pages 181-203, June.
    10. Yang Liuyi & Zhu Yunchan & Ren Feirong, 2023. "Does government investment push up manufacturing labor costs? Evidence from China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 10(1), pages 1-10, December.
    11. Almosova, Anna & Burda, Michael C. & Voigts, Simon, 2020. "Social Security Contributions and the Business Cycle," Journal of Macroeconomics, Elsevier, vol. 65(C).
    12. Nicole Bosch, 2019. "The Incidence of Pension Contributions," CPB Discussion Paper 388.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    13. José L. Torres, 2022. "Social security contributions distribution and economic activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(2), pages 378-407, April.
    14. Silvia Sarpietro & Yuya Sasaki & Yulong Wang, 2026. "Nonexistent Moments of Earnings Growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 41(1), pages 39-55, January.
    15. Tian, Ying & Ma, Haitao & Tunio, Fayaz Hussain, 2024. "Evaluating the impact of social security contribution rate, delayed retirement age, and employment rate on pension replacement rate: An overlapping generation (OLG) model analysis," Research in Economics, Elsevier, vol. 78(2).
    16. Nicole Bosch & Casper Ewijk & Maja Micevska Scharf & Sander Muns, 2022. "The Incidence of Pension Contributions: A Panel Based Analysis of the Impact of Pension Contributions on Labor Cost, Wages and Labor Supply," De Economist, Springer, vol. 170(1), pages 107-132, February.
    17. Xiaohan Liu & Jianmin Liu & Jia Liu & Jinguang Wu & Yu Hao, 2025. "Does a reduction in the pension insurance contribution ratio promote firm productivity? Evidence from a quasinatural experiment in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 665-688, January.
    18. Dorian Carloni, 2021. "Revisiting the Extent to Which Payroll Taxes Are Passed Through to Employees: Working Paper 2021-06," Working Papers 57089, Congressional Budget Office.
    19. Huang, Li & Jiang, Xiandeng, 2025. "Risk-taking in gambling cultures and social security contributions – evidence from Chinese small and micro enterprises," Pacific-Basin Finance Journal, Elsevier, vol. 91(C).

    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • 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
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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