Value-added tax versus Social Security contributions
In order to alleviate unemployment it is often recommended to reduce social security contributions (SSC) and to compensate for the ensuing loss in revenues by a rise in the value-added tax (VAT). Assuming unemployment to be caused by efficiency wages, it is shown that a balanced-budget shift from a payroll tax to a VAT will increase employment if the rise in the VAT does not alter consumer prices. If the effects of a shift from SSC to the VAT on the worker's effort are neutralised, for example, by imposing a constant wedge, the employment impact will depend on the nature of the unemployment compensation system.
12 pages matching payroll tax in this book
Results 1-3 of 12
What people are saying - Write a review
We haven't found any reviews in the usual places.
ambiguous analysis balanced-budget shift budget Cobb-Douglas constant real benefits constant wedge consumer price index consumer prices consumption taxes D. J. Snower defined efficiency wage models effort function employers and employees employment per firm equally by employers equation ewrw fiscal reform full forward shifting Germany given wage Goerke gross nominal Hence holding constant implies Konstanz labor economics labor markets labour costs labour demand curve lmmigrant microeconomic nominal benefit systems nominal replacement rate nominally fixed normalised to unity OECD payroll tax Pisauro ployment positive employment effect Proposition R. T. Riphahn raise employment real benefit systems real replacement rate real wage reduce unemployment rise shared by employers shift from employees shift from SSC shirking constraint shirking framework social security contributions substitution tax base effect tax on revenues tax rates tax reform tax wedge taxes on energy unambiguously unem unemployed workers unemployment benefits unemployment compensation utility VAT rate wage change