Social Security Contributions and the Business Cycle

40 Pages Posted: 19 Jun 2017

See all articles by Anna Almosova

Anna Almosova

Humboldt University of Berlin

Michael C. Burda

Humboldt University of Berlin - Faculty of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Simon Voigts

Humboldt University of Berlin - School of Business and Economics

Date Written: June 2017

Abstract

This paper examines magnitudes and business cycle dynamics of social security contributions (SSC). In most OECD countries studied, we document a negative covariation of payroll tax burdens with GDP and GDP growth at business cycle and lower frequencies. We assess the overall magnitude of the distortion following Barro and Redlick (2011). For most countries, average marginal SSC tax rates exceed average rates, but the latter tracks the former tightly. Changes in average payroll tax burdens are mostly accounted for by changes in tax schedules rather than shifts in the earnings distribution over time. For many countries, SSC rates behave like estimated values of the "labor wedge" (Chari et al. 2007, Brinca et al., 2016).

Keywords: Business cycle, labor wedge, payroll tax, social security contributions

JEL Classification: E24, E32, H55, J32

Suggested Citation

Almosova, Anna and Burda, Michael C. and Voigts, Simon, Social Security Contributions and the Business Cycle (June 2017). CEPR Discussion Paper No. DP12096, Available at SSRN: https://ssrn.com/abstract=2988855

Anna Almosova (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Michael C. Burda

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
D-10178 Berlin
Germany
+49 30 2093 5638/50 (Phone)
+49 30 2093 5696 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Simon Voigts

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

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