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Social Security Contributions and the Business Cycle

Alexander Meyer-Gohde

No SFB649DP2017-018, SFB 649 Discussion Papers from Humboldt University, Collaborative Research Center 649

Abstract: This paper examines magnitudes and business cycle dynamics of social security contributions (SSC). In most OECD countries studied, we document a negative covariation of payroll tax burdens with GDP and GDP growth at business cycle and lower frequencies. We assess the overall magnitude of the distortion following Barro and Redlick (2011). For most countries, average marginal SSC tax rates exceed average rates, but the latter tracks the former tightly. Changes in average payroll tax burdens are mostly accounted for by changes in tax schedules rather than shifts in the earnings distribution over time. For many countries, SSC rates behave like estimated values of the “labor wedge” (Chari et al. 2007, Brinca et al., 2016).

Keywords: business cycle; payroll tax; social security contributions; labor wedge (search for similar items in EconPapers)
JEL-codes: E24 E32 J32 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-eec, nep-lma, nep-mac and nep-pbe
Date: 2017-08
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