Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107917
Authors: 
Voigts, Simon
Year of Publication: 
2014
Series/Report no.: 
SFB 649 Discussion Paper 2014-061
Abstract: 
Conventional wisdom states that the statutory split of payroll taxation between firms and workers is of no macroeconomic relevance, because the tax incidence is fully determined by the market structure. This paper breaks with this view by establishing a theoretical link between the statutory split and the average volatility of prices and wages. It is shown that shifting taxation towards workers significantly reduces the volatility in nominal variables without entailing long-run redistribution. The gain in stability of prices and wages reduces inefficiencies in the equilibrium allocation of the stochastic model and thereby reduces welfare costs of business cycle fluctuations. In a standard DSGE model, welfare costs un- der the full taxation of firms are 11.25% larger than under the full taxation of workers.
Subjects: 
payroll taxes
social security
business cycles
automatic stabilizers
optimal taxation
JEL: 
H55
H21
E30
E32
E60
Document Type: 
Working Paper

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