Tax competition and the move from insurance to assistance

Michaël Zemmour ()
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Michaël Zemmour: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: The funding of social protection has strongly evolved in Bismarckian countries : whereas social protection used to rely on social contributions, since the 1990s most of the new expenditures have been funded through taxation, leading to a more balanced mix in the structure of social protection revenue. I propose a formal model in which two social protection systems may coexist: insurance and assistance. Insurance level is set by consensus between firms and unions, whereas assistance expenditures are set by a majority vote in parliament. Social insurance can be manipulated to influence preferences in respect of assistance. It is shown how an exogenous increase in tax competition in a Bismarckian context can lead to the emergence of a mixed model: assistance increases to complement existing insurance, not to replace it. A time series cross-section analysis on 9 countries over 25 years supports the idea that a drop in corporate tax rates can trigger a shift in the tax structure of social protection funding.

Keywords: Changement institutionnel; cotisations sociales; finances publiques; économétrie comparative; microéconomie de la protection sociale; taxation; Assistance; institutional change; insurance; political economy; tax-competition; veto (search for similar items in EconPapers)
Date: 2012-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00768909v2
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Published in 2012

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