Empirical Macromodels Under Test

Herbert S. Buscher, Hermann Buslei, Klaus Göggelmann, Henrike Koschel, Tobias F. N. Schmidt, Viktor Steiner and Peter Winker

No 575, Discussion Papers from Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre

Abstract: This paper examines the employment effects of a revenue-neutral cut in the social security contribution rate in Germany by running policy simulations in four different types of macroeconomic models. Two models are based on time-series data where the labor market is modeled basically demand oriented, whereas the other two models are supply oriented computable general equilibrium models. While the predicted employment effects of the cut in the contribution rate are qualitatively similar across models three years after the cut, they differ considerably in magnitude. These differences can to a large extent be attributed to differences in the basic structure of the models. Of special importance is how prices and wages react in each model to the cut in the social security tax rate on one side, and the necessary increase of the indirect tax rate on the other side. The results, therefore, provide a guideline for assessing the outcome of policy simulations and for the further development of macroeconomic models suitable for this kind of experiments.

JEL-codes: C50 C53 C68 E17 H55 (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:mnh:vpaper:1036

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