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The macroeconomic effects of social security contributions and benefits

Sebastian Gechert, Christoph Paetz and Paloma Villanueva

Journal of Monetary Economics, 2021, vol. 117, issue C, 571-584

Abstract: A narrative dataset of legislative social security shocks is constructed for Germany. The dataset covers major legal changes in benefits and contributions from 1970 to 2018. We estimate their macroeconomic effects in a proxy SVAR. The GDP response to a cut in contributions yields a fiscal multiplier of about 0.4 on impact that fades relatively quickly. For benefit increases the impact multiplier is 1.1 and more persistent. The response of other macro variables suggests that benefits work through a strong demand-side channel, while contributions exhibit supply-side effects. Combining the shocks with household data confirms a strong consumption response of beneficiaries.

Keywords: Narrative approach; Fiscal multiplier; Social security; MPC Heterogeneity (search for similar items in EconPapers)
JEL-codes: E62 H20 H30 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jmoneco.2020.03.012

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