Please use this identifier to cite or link to this item:
Antón, Arturo
Leal, Julio
Year of Publication: 
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-429
This paper analyzes the aggregate effects of a revenue neutral fiscal-cumsocial policy reform in a typical developing country that consists of two main changes: (1) the implementation of universal social insurance to replace the current dual social protection system (i.e., a reconfiguration of transfers); and (2) the elimination of the current social security payroll tax to replace it with a generalized VAT (i.e., a reconfiguration of taxes). The authors find that this reform increases productivity by 2 percent and output by 3 percent as it improves the allocation of resources across firms and sectors, and generates a substantial change in occupational choices that favors wage earners. As a result, wages (before transfers) increase for all employees. Also, due to the reconfiguration of transfers, earnings (wages after transfers) for informal employees increase relative to the earnings of formal employees, which decreases inequality. However, we also find that the reform could affect some groups in the population, given the regressive nature of VAT and heterogeneity in the valuation of transfers across workers.
Total factor productivity
Fiscal policy
Social security
Informal labor markets
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.