Value-Added Tax Versus Social Security Contributions

22 Pages Posted: 18 Oct 1999

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: August 1999

Abstract

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 neutralized, for example, by imposing a constant wedge, the employment impact will depend on the nature of the unemployment compensation system.

JEL Classification: H24, H25, J32, J41

Suggested Citation

Goerke, Laszlo, Value-Added Tax Versus Social Security Contributions (August 1999). Available at SSRN: https://ssrn.com/abstract=180533

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

Behringstra├če 21, 7. Floor, Building H
Trier, 54296
Germany

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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