Link to the University of Pittsburgh
Link to the University Library SystemContact us link
AEI Banner

The labour market and fiscal impact of labour reductions: The case of reduction of employers' social security contributions under a wage norm regime with automatic price indexing of wages. NBB Working Paper Nr. 36

Burggraeve, Koen and Du Caju, Philip. (2003) The labour market and fiscal impact of labour reductions: The case of reduction of employers' social security contributions under a wage norm regime with automatic price indexing of wages. NBB Working Paper Nr. 36. [Working Paper]

[img]
Preview
PDF
Download (165Kb) | Preview

    Abstract

    This paper investigates the possible labour market and fiscal impacts of labour tax reductions in a typically Belgian setting, i.e. a wage norm regime with automatic price indexing of wages. We consider reductions in employers' social security contributions and fiscal compensation through value added or production taxes. Reductions in employers' social security contributions can only have significant employment effects if they effectively reduce labour costs. These reductions are only partly self-financing, and the cost per job created is high. The remaining negative impact on the government budget should be compensated through an alternative means of financing this expenditure, since not–compensating for the budgetary loss is not a realistic option in the long run. For this purpose, various financing schemes can be envisaged, but an increase in value added tax and the introduction of a tax on production (mimicking environmental taxes affecting firms' production costs) are the two possibilities considered in this paper. The alternative financing mechanisms destroy some of the positive employment effects of the initial reductions. However, on balance the combined measures can create some employment without worsening the government budget balance. The reaction of wages to the reduction in employers' social security contributions and to the fiscal compensation measures proves crucial. The more the initial reductions in employers' contributions are used to finance higher gross wages, and the more the inflationary effects of fiscal compensation measures are passed on in wages, the less positive the impact on employment will be. This means that little job creation is to be expected without a special co-ordination effort between all labour market players. Labour tax reductions are by no means a substitute for other labour market reforms.

    Export/Citation:EndNote | BibTeX | Dublin Core | ASCII (Chicago style) | HTML Citation | OpenURL
    Social Networking:
    Item Type: Working Paper
    Uncontrolled Keywords: Social security; taxation policy.
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > tax policy
    Countries > Belgium
    EU policies and themes > Policies & related activities > social policy > welfare state
    EU policies and themes > Policies & related activities > employment/labour market > industrial/labour relations
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 25 Jun 2003
    Page Range: p. 47
    Last Modified: 15 Feb 2011 17:16
    URI: http://aei.pitt.edu/id/eprint/657

    Actions (login required)

    View Item

    Document Downloads