Salience of social security contributions and employment

Inigo Iturbe-Ormaetxe

International Tax and Public Finance, 2015, vol. 22, issue 5, 759 pages

Abstract: Social security contributions in most countries are split between employers and employees. According to standard incidence analysis, social security contributions affect employment negatively, but it is irrelevant how they are divided between employers and employees. This paper considers the possibility that (i) workers perceive a linkage between current contributions and future benefits, and (ii) they value employer’s contributions less than own contributions, as the former are less “salient.” Under these assumptions, I find that employers’ contributions have a stronger (negative) effect on employment than employees’ contributions. Furthermore, a change in how contributions are divided, which reduces the share of employers, is beneficial for employment. Finally, making employers’ contributions more visible to workers also has a positive effect on employment. Copyright Springer Science+Business Media New York 2015

Keywords: Payroll tax; Social security; Tax incidence; Tax salience; D03; H22; J08 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:22:y:2015:i:5:p:741-759

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DOI: 10.1007/s10797-014-9322-3

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