Social Security Tax Reform and Unemployment: A General Equilibrium Analysis for France

International Monetary Fund

No 1997/059, IMF Working Papers from International Monetary Fund

Abstract: This paper develops and calibrates a simple general equilibrium model with two types of labor and capital for the French economy. The simulation results indicate that targeted reductions in employer social security taxes have six times as large an effect on employment as untargeted reductions for equal initial budgetary cost, while employee social security tax reductions have a negative effect on employment. They also point to the presence of “self-financing,” whereby reductions in various tax rates lead to lower budget deficits in the long run, as a result of an expanding tax base and lower unemployment insurance outlays.1

Keywords: WP; wage; labor; worker; employer; Tax policy; Unemployment; Laffer Curve; Wage Curve; employment effect; labor income; employment creation; replacement ratio; net wage; Social Security tax reduction; rate of return constraint; employment effects of reduction; employer Social Security tax reduction; labor cost of skilled workers; social security; rate of return test; Social security contributions; Employment; Wages; Income tax systems; Global (search for similar items in EconPapers)
Pages: 29
Date: 1997-05-01
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