Social security contributions: Economic and public finance considerations

Social security contributions make up around a fourth of total tax revenue in OECD countries. However, there are concerns on the economic effects of high levies on labour. Recent studies suggest that at least a third of taxes on labour are shifted onto employers, leading to higher wage costs. We find substantial evidence in the literature that the nature of social security contributions matters. With a clear connection between contributions and rights, the employee will perceive this contribution as a price and not as a tax. As a consequence, these contributions will be less distortive in terms of labour supply, wage costs and private savings.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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