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On the Incidence Neutrality of Employer and Employees Social Contributions, Again

Author

Listed:
  • Aleman-Pericon, Christian

    (NYUAD)

  • Mimani, Pranav

    (NYUAD)

  • Santaeulalia-Llopis, Raul

    (NYUAD)

  • Wasmer, Etienne

    (NYUAD and LISER)

Abstract

This paper revisits the belief that the mix of employer and employee social security contributions is neutral for employment and equilibrium wages. We establish the conditions required for neutrality across competitive settings, institutional minimum wages, progressive taxation, and search-and-matching frictions. We show that statutory invariance breaks down due to an asymmetry in the tax wedge operating almost identically across all models. Tax neutrality is restricted to a knife-edge case that does not hold in modern labor markets. Statutory non-neutrality in the labor market is therefore relevant quantitatively because it arises as soon as marginal tax rates are above 20\%. This has implications for designing contemporary welfare and workfare policies.

Suggested Citation

  • Aleman-Pericon, Christian & Mimani, Pranav & Santaeulalia-Llopis, Raul & Wasmer, Etienne, 2026. "On the Incidence Neutrality of Employer and Employees Social Contributions, Again," IZA Discussion Papers 18850, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18850
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    References listed on IDEAS

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    1. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. ., 2019. "Public finance, monetary policy and banking supervision," Chapters, in: Islamic Finance, chapter 7, pages 180-206, Edward Elgar Publishing.
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    Keywords

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    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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