Macroeconomic Effects of Social Security Totalization Agreements

María J. Prados, Erik Meije and Francisco Pérez-Arce
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María J. Prados: University of Southern California
Erik Meije: University of Southern California
Francisco Pérez-Arce: University of Southern California

Working Papers from University of Michigan, Michigan Retirement Research Center

Abstract: The United States has signed international social security totalization agreements with 30 countries. For persons working in a foreign country during part of their careers, these agreements reduce double taxation on social security burdens and reduce the risk of not qualifying for social security benefits. In this report, we consider the potential of international social security totalization agreements to affect macroeconomic outcomes. We find that these agreements are associated with higher levels of foreign direct investment. The theoretical framework indicates that these treaties can affect firms’ decisions to relocate their activities across borders, but the magnitude and direction of this effect depends on the characteristics of the countries involved. The effects of these agreements are larger when the share of foreign-controlled production is smaller in the host country.

Pages: 72 pages
Date: 2019-09
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