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

Christian Aleman-Pericon (), Pranav Mimani (), Raul Santaeulalia-Llopis () and Etienne Wasmer ()
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Christian Aleman-Pericon: NYUAD
Pranav Mimani: NYUAD
Raul Santaeulalia-Llopis: NYUAD
Etienne Wasmer: NYUAD and LISER

No 18850, IZA Discussion Papers from IZA Network @ 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.

Keywords: labor taxes; tax incidence; employment; search models (search for similar items in EconPapers)
JEL-codes: H22 J32 J38 J64 (search for similar items in EconPapers)
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp18850

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