Tax competition and the move from insurance to assistance

Michaël Zemmour (michael.zemmour@sciencespo.fr)

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The funding of social protection has strongly evolved in Bismarckian countries: whereas social protection used to rely on social contributions, since the 1990s most of the new expenditures have been funded through taxation, leading to a more balanced mix in the structure of social protection revenue. I propose a formal model in which two social protection systems may coexist: insurance and assistance. Insurance level is set by consensus between firms and unions, whereas assistance expenditures are set by a majority vote in parliament. Social insurance can be manipulated to influence preferences in respect of assistance. It is shown how an exogenous increase in tax competition in a Bismarckian context can lead to the emergence of a mixed model: assistance increases to complement existing insurance, not to replace it. A time series cross-section analysis on 9 countries over 25 years supports the idea that a drop in corporate tax rates can trigger a shift in the tax structure of social protection funding

Keywords: Assistance; institutional change; insurance; political economy; tax-competition; veto (search for similar items in EconPapers)
JEL-codes: H2 H5 P16 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-ias
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Related works:
Working Paper: Tax competition and the move from insurance to assistance (2013)
Working Paper: Tax competition and the move from insurance to assistance (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:12090

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