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35 years of reforms: A panel analysis of the incidence of, and employee and employer responses to, social security contributions in the UK

Stuart Adam, David Phillips and Barra Roantree ()

Journal of Public Economics, 2019, vol. 171, issue C, 29-50

Abstract: We examine the effects of employee and employer social security contributions (SSCs) on labor cost, hours of work, and labor cost per hour, using a long running panel dataset that allows us to exploit 35 years of policy reforms in the United Kingdom. We find that reductions in marginal rates of employee – but not employer – SSCs have positive effects on labor cost that operate through hours of work, while labor cost falls much more when average employer SSCs rates are reduced than when average employee SSCs rates are reduced, with most of this differential effect coming through reductions in hourly labor cost. We interpret this as evidence that employees change their hours in response to SSCs, but that in the short- to medium-run at least, the formal incidence of SSCs can matter for their behavioral impacts and economic incidence.

Keywords: Social security contributions; Tax incidence; Labor supply; Labor demand; Taxable income elasticities (search for similar items in EconPapers)
JEL-codes: H22 H24 H25 J20 J30 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: 35 Years of Reforms: A Panel Analysis of the Incidence of, and Employee and Employer Responses to, Social Security Contributions in the UK (2017) Downloads
Chapter: 35 Years of Reforms: A Panel Analysis of the Incidence of, and Employee and Employer Responses to, Social Security Contributions in the UK (2016)
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