Welfare Effects of Alternative Financing of Social Security: Some Calculations for Belgium

39 Pages Posted: 9 May 2008

See all articles by Bart Capéau

Bart Capéau

KU Leuven - HIVA - Research Institute for Work and Society

André Decoster

Department of Economics KU Leuven

Kris De Swerdt

KU Leuven - Faculty of Business and Economics (FEB)

Kristian Orsini

KU Leuven

Date Written: April 2008

Abstract

We analyse the distributional impact of lowering social security contributions and compensating the revenue loss by an increase in indirect taxes. We empirically assess the distributional consequences of this shift by using two Belgian microsimulation models: MODÉTÉ for the tax benefit system, and aster for the indirect tax part. Since the underlying micro database of the tax benefit system does not contain expenditures, we first impute detailed expenditures in the income data survey, by means of semiparametric Engelcurves. The currently living generation of pensioners belongs to the losers by such a reform: They do not profit from the reduced tax on labour income, but pay higher consumption prices. Less obvious, also part of the working population loses. Even not all those who leave unemployment after the reform are gainers. We also investigate the sensitivity of the results w.r.t. the choice of welfare measure to assess the combined change in disposable income, consumer prices and - in the case of flexible labour supply - leisure. We show how the specific choice and parameters of the welfare measure will influence the conclusions, possibly even more than the predictive model for assessing the behavioural reactions in labour supply.

Keywords: microsimulation, social security contributions, demand system, indirect taxes, labour supply

JEL Classification: D12, H31, H55, J22

Suggested Citation

Capéau, Bart and Decoster, André and De Swerdt, Kris and Orsini, Kristian, Welfare Effects of Alternative Financing of Social Security: Some Calculations for Belgium (April 2008). Available at SSRN: https://ssrn.com/abstract=1130790 or http://dx.doi.org/10.2139/ssrn.1130790

Bart Capéau (Contact Author)

KU Leuven - HIVA - Research Institute for Work and Society ( email )

Parkstraat 47
Leuven, BE3000
Belgium

André Decoster

Department of Economics KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

HOME PAGE: http://www.andredecoster.be

Kris De Swerdt

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Kristian Orsini

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

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