Social Security Contributions and the Business Cycle

Anna Almosova, Michael Burda and Simon Voigts

Journal of Macroeconomics, 2020, vol. 65, issue C

Abstract: We investigate business cycle dynamics of social security contributions (SSC), by far the largest labor tax distortion in the OECD. In most countries, we find a negative covariation of SSC tax burdens with levels and growth of GDP at business cycle frequencies and lower. In detrended data, a decline of GDP of 1% is associated with a 0.05-0.2 percentage point increase in the aggregate SSC burden, measured as a fraction of the wage bill. For most countries, average marginal SSC rates exceed, but track average rates. Changes in average SSC tax burdens are largely due to adjustments in statutory tax schedules rather than cyclical shifts in earnings distributions. Our findings are consistent with Esping-Andersen's (1990) typology of social welfare states. In some countries, SSC rates co-move with measures of the “labor wedge” (Chari et al. 2007, Brinca et al. 2016).

Keywords: Payroll taxation; Social security contributions; Business cycle; Labor wedge; E6; H2; J3 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Working Paper: Social Security Contributions and the Business Cycle (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:65:y:2020:i:c:s016407042030135x

DOI: 10.1016/j.jmacro.2020.103209

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