Too little of a bad thing

Too little of a bad thing

A firm's share of the labor income tax burden is its social security contribution per employee. A worker's burden consists of labor income tax payments and her social security contribution. In an economy where firms can use both primary employees (for whom SS contributions must be made) and secondary employees (no SS contributions), shifting the firm's contribution burden to it's employees increases hours worked, consumption and aggregate welfare. A tax policy shift from the current 35% share of firm SS contributions in the labor income tax burden in the EU-14 to 0% (like Denmark) is equivalent to increasing lifetime consumption by as much as 13%. Our paper with these preliminary findings was presented at 5th NBP Summer Macroeconomic Workshop. We are grateful to all the wonderful comments by Jakub Growiec, Marcin Kacperczyk, Michal Gradzewicz, Pawel Zabczyk, Wojciech Paczos and last but certainly not least Anna Orlik