Value-Added Tax versus Social Security Contributions

Laszlo Goerke ()

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 1999, vol. 219, issue 3+4, pages 308-325

Abstract: In order to alleviate unemployment it is often recommended to reduce social security contributions (SSC) and to compensate for the ensuing loss in revenues by a rise in the value-added tax (VAT). Assuming unemployment to be caused by efficiency wages, it is shown that a balanced-budget shift from a payroll tax to a VAT will increase employment if the rise in the VAT does not alter consumer prices. If the effects of a shift from SSC to the VAT on the worker*s effort are neutralized, for example, by imposing a constant wedge, the employment impact will depend on the nature of the unemployment compensation system.

Keywords: efficiency wages; social security contributions; unemployment; value-added tax (search for similar items in EconPapers)
JEL-codes: H24 H25 J32 J41 (search for similar items in EconPapers)
Date: 1999
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