A Framework for Cost-Benefit Analysis of Totalization Agreements

Abstract

International social security totalization agreements eliminate double social security taxation for workers who reside and work in different country from their home country. Because totalization agreements affect a number of economic agents in a variety of ways, we develop a cost-benefit framework of totalization agreements to facilitate the comparison and assessment of these impacts from a cost-benefit perspective. It lists the important stakeholders and the types of potential effects of the agreement on them, and attempts to quantify each type of effects for each stakeholder. The framework can be useful to policy makers and researchers to evaluate the economic implications of current or proposed future agreements, depending on scenarios of economic conditions, characteristics of partner countries, and how they affect different stakeholders. The paper also summarizes what is currently known about the effects and related costs and benefits of totalization agreements. We provide relatively simple and straightforward example calculations for some of these effects, as well as calculations using a stylized micro-economic model for workers and a stylized macro-economic model for firm investment and production allocation. In a few cases, we have both simple calculations of direct effects and model calculations that take more channels into account (under strong assumptions), and they agree well, implying that the simple calculations capture most of the total effect.

Keywords: International; totalization agreements; OASDI taxes; micro-economic model