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The macroeconomic effects of social security contributions and benefits

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  • Gechert, Sebastian
  • Paetz, Christoph
  • Villanueva, Paloma

Abstract

A narrative dataset of legislative social security shocks is constructed for Germany. The dataset covers major legal changes in benefits and contributions from 1970 to 2018. We estimate their macroeconomic effects in a proxy SVAR. The GDP response to a cut in contributions yields a fiscal multiplier of about 0.4 on impact that fades relatively quickly. For benefit increases the impact multiplier is 1.1 and more persistent. The response of other macro variables suggests that benefits work through a strong demand-side channel, while contributions exhibit supply-side effects. Combining the shocks with household data confirms a strong consumption response of beneficiaries.

Suggested Citation

  • Gechert, Sebastian & Paetz, Christoph & Villanueva, Paloma, 2021. "The macroeconomic effects of social security contributions and benefits," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 571-584.
    • Handle: RePEc:eee:moneco:v:117:y:2021:i:c:p:571-584
    DOI: 10.1016/j.jmoneco.2020.03.012
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    More about this item

    Keywords

    Narrative approach; Fiscal multiplier; Social security; MPC Heterogeneity;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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