Shedding light on the hidden welfare state of private pensions: Examining the size and distributional effects of social tax expenditures for second pillar employee pensions in Belgium

As an important component of operating costs, excessive social security contribution reduces the willingness and contribution rate of small- and medium-sized firms. In China, one third of firms do not participate in social security, and the other firms generally have the problem of evasion and arrears. Specifically, Feng (2013) finds that the contribution rate of Chinese industrial firms is uneven, and the average rate is only 10.82%, far lower than the legal rate. How to explain the variation in social security contribution rate among firms? Is social security contribution the burden of business activities? Answering these questions helps to understand the motivation of firms’ social security contribution, bolster up the design of social security collection system, and provide theoretical and practical reference for the “cost reduction” of supply-side structural reform.This paper investigates the relationship between labor market size (LMS) and firms’ social security contribution rate (SSCR) based on the profit maximization framework. Given the dual effects of SSCR on firms’ labor productivity and financial distress cost, optimal SSCR is achieved when marginal income equals to marginal cost. As LMS expands, decreasing search cost and compensating differentials for job loss risk increase optimal SSCR. Further, the empirical results measuring LMS by industrial employment capacity find that LMS significantly increases firms’ SSCR belonging to the same industry, especially for firms with serious financial constraints, high unemployment cost and private ownership. In addition, increasing SSCR significantly deteriorates firms’ performance, suggesting that the cost effect plays a leading role.Our findings demonstrate that the behaviors of social security by firms are subject to industrial environment, suggesting that it is necessary to account for the issue when policymakers adjust economic policies. Our paper contributes to the literature in three aspects: First, from the perspective of endogenous social security contribution, we explore the impact of labor market size on firms’ social security contribution, which enriches the labor “thick market” theory and relevant literature of firms’ social security contribution. Second, we build a theoretical framework to explain the endogenous logic of labor market size affecting firms’ social security contribution. Third, understanding the logic of firms’ social security contribution provides a micro basis for the reform of social security collection and contribution system.

The UK raised 35% of national income in tax in 2018–19. Figure 1 shows that tax as a share of national income has fluctuated between around 30% and 35% of national income since the end of the second world war and been rising since the early 1990s. Tax revenues are now, just, higher as a share of national income than at any point since the late 1960s. An ageing society is increasing pressure on health, social care and pension systems such that maintaining the same quality and scope of public services in the future will likely require higher taxes as a share of national income.[1] Tax increases have been on the public policy agenda. For example, in the 2017 general election, the Labour party proposed a package of tax measures that it expected to raise £50 billion (2% of national income) a year.[2] This would have taken tax revenues to 37% of national income. Figure 1: UK national accounts taxes, 1948 to 2023–24 Note: Data are calendar year up to 1953 and financial year thereafter. Dotted line from 2019–20 onwards is the Office for Budget Responsibility forecast accompanying the Spring Statement in March 2019. Public sector current receipts (not shown) is national accounts taxes plus other revenues, including the gross operating surplus of public sector corporations and interest on government assets. Source: Office for Budget Responsibility, Public Finances Databank, https://obr.uk/data/. Figure 1 shows that the UK has not previously raised more than 35% of national income in tax on a sustained basis. This highlights that significant tax increases (such as those set out in the Labour party’s manifesto) would take the UK into unprecedented territory, and suggests that raising additional revenues sufficient to meet future public service demands may be challenging. However, many other advanced economies already raise substantially more than the UK. Figure 2 shows that UK revenue as a share of national income is in the middle of the pack when compared with other advanced economies (and would remain middle of the pack if tax were 2% of national income higher). It is slightly below the OECD average, significantly below many EU15 countries and even further below the average among Scandinavian countries. Figure 2: Tax revenues as a share of national income, OECD countries, 2016 Note: Scandinavia includes Denmark, Sweden and Norway. For Australia, Greece and Japan, data are shown for 2015 as 2016 values were unavailable at the time of download. Precise definition of tax revenue here differs from that in Figure 1 – for example, because items such as environmental levies are classified as taxes for national accounts purposes but are not included as tax revenues on the OECD definition. However, the revenue streams included in Figure 1 and this figure are mostly the same. Source: OECD, Global Revenue Statistics Database, http://www.oecd.org/tax/tax-policy/global-revenue-statistics-database.htm, extracted 2 August 2018. This report provides context to the debate about the size of the UK tax take by setting out how different countries raise tax (Section 2). We show that the UK stands out mainly in raising less from income tax and social security contributions (SSCs). We then explore who would pay more tax on their earnings if the UK were to adopt other European countries’ tax systems (Section 3). International examples do not set a prescription for UK tax policy. There are many reasons why countries raise different amounts of tax and from different individuals, including, among others, different economic structures, the chosen scope and quality of public services, and the desire for redistribution. Key findings The UK’s current tax take is high by historical UK standards, but below average among OECD countries. The UK government raises around 35% of national income in tax revenue, a share that has been edging up in recent decades and is now at its highest point since the late 1960s. The average among OECD countries is higher and many countries in Europe raise substantially more as a share of national income. All OECD economies raise the majority of their tax revenues from three broad-based taxes on income, earnings and consumption. Income tax, social security contributions (SSCs) and value added tax (VAT) / general sales tax (GST) account for over 50% of revenues in all advanced economies, and significantly more than that in most. The UK raises a below-average share of national income from income tax and SSCs. It raises much less than many European countries from SSCs (National Insurance contributions) and from employer contributions in particular. The UK’s lower revenues from these taxes more than explain the UK’s below-average tax take – the UK raises more than average from taxes excluding income tax and SSCs. Individuals at both the median and top of the UK income distribution pay less income tax and SSCs than they would if the UK adopted the tax system of a higher-tax country. In most cases, average tax rates would be higher for both median and high-income earners if the UK implemented the income tax and SSC system from one of the EU15 countries that raise more tax than the UK. The UK is more of an outlier at the median, especially for SSCs, than it is for top earners. The UK has one of the more progressive income tax and SSC systems in the EU15 in the sense that average rates are high at the top relative to the median. Average tax rates rise more quickly with income in the UK, and are higher at the top relative to the median, than in most of the European countries that raise more revenue overall.  

The chapter analyses the worldwide introduction of social security contributions. It uses the example of Bismarck’s Germany to ask whether the adoption of social security contributions in non-European countries followed a similar logic as in European welfare state pioneers. To answer this question, the chapter develops the main differences between social security contributions and other modern taxes and deduces some empirical implications for the politics of their respective introduction. Next, the chapter explores quantitative evidence on why countries chose social security contributions when introducing their first social security laws. It finds that the decision to use social security contributions often followed the demands of urban workers seeking insurance rather than redistribution. The chapter concludes with qualitative evidence suggesting that these early manifestations of an urban bias often had long-term consequences for the politics of the welfare state.

Part 1 Introduction - actors, paradigms, and pensions: pensions as efficient contracts - the neoclassical perspective pensions as worker control devices - the Marxist perspective pensions as social institutions - the institutionalist perspective pension policy issues. Part 2 The pension idea: who should provide retirement income - government or business? who got to retire? types of government schemes what employers want from pensions intitial employer pension goals characteristics of the early employer pensions outcomes and contradictions - the new private pension system. Part 3 Social insurance with a union label: unions, pensions, and segmented labour markets union influence on pension coverage outcomes and contradictions - pension bargaining without conflict. Part 4 The employer pension system - distribution and moral hazard: pensions and moral hazard external factors - distribution of pension plan coverage and benefits internal factors - how do pensions affect workers within a plan? a theory about the pension contract portable pensions, SEPs, and distributional equity outcomes and contradictions - toward a mandatory pension system. Part 5 Corporate uses of pension funds: pension contracts and firm default government and the corporate use of pension plans outcomes and contradictions - challenges to corporate use. Part 6 Pension funds and financial democracy: economic power labor's acess to pension fund management competition for the control of capitl prospects for worker capitalism outcomes and contradictions - ownership and strategies. Part 7 What makes a good private pension system?: requirements for an optimum pension system is the pension system consistent with government goals? federal pension law - 1920-1989 most of the costs and some of the benefits of private pensions outcomes and contradictions - the costs of volunteerism. Part 8 Directions for private pension reform: outlook for employer pension policies in the 1990s the likely direction of government policies democratizing the social security trust fund resolving the private pension contradictions.

Public pension schemes are most often discussed from a social welfare and public policy point of view. Nevertheless, the design of public pensions should also be taken into close consideration by companies planning and designing private pension plans for their employees. Social security and private pensions are both very important parts of retirement resources for the vast majority of the population and the adequacy of these resources thus depends not only on the generosity of social security but also on the financial commitment employers choose to make to private arrangements. In this sense, private pensions come to complement social security benefits and, in many cases, they are either explicitly or implicitly integrated with public provision. In many countries, private pension designers consider projected social security benefits and contributions when defining their overall benefit strategy. It is vital, nevertheless, that more employers take into account the specificities of first pillar pensions in each country so as to develop benefit packages that complement social security benefits effectively. Accordingly, in the following paper we will examine and analyze social security systems across eight developed nations (Canada, France, Germany, Italy, Japan, Netherlands, UK and US). We have based our comparison on three key aspects: the generosity of state benefits; whether the focus rests on the insurance or redistributive role of social security; and the long term sustainability of public pensions. We will show that the way in which these aspects are defined and interact have different implications in terms of how companies plan and design the retirement benefits offered to employees.

The Development of the Egalitarian Character of Tax and Social Security Contributions under the Fifth Republic: A Supplement, by Rachel Loquet, Jerry Rafaliarison and Alain Trannoy. The purpose of this article is to expand the study on the comparison between the egalitarian nature of the income tax scale and social security contributions from 1959 to 1989, as undertaken by Trannoy et al (1991 Economie et Prévisions, Taxation Studies). In common with the previous study, this research restricts its focus to the study of the typical case of the single employee. This time, however, employers' social contributions are taken into account and social contributions paid under the "solidarité" scheme placing the long-term unemployed in short-term jobs are distinguished from other social contributions. The other enhancement consists of obtaining results using four samples of fiscally single individuals for 1984 and 1988. The recurrent observation fits in with the Lorenz-curve domination of the 1970s scales, sometimes by those of the 1980s and sometimes by those of the 1960s, depending on the case considered.

In a research paper, the authors provide an empirical approach to taxes and economic growth in the United States in the period 1996-2016. The basic goal is to explore how taxes affect economic growth. The subject of the research is measuring the effects of tax revenue growth and tax form as a personal income tax, corporate income tax and social security contributions on gross domestic product as a proxy for economic growth. Methodology framework includes several tests to clear the potential problem of heteroscedasticity, autocorrelation, multicollinearity and specification of the model. Based on diagnostic tests, a regression model is adequately created where fundamental econometric procedures are applied. Correlation matrix reflects a strong and positive relationship between tax revenue growth and corporate income tax on the one side and gross domestic product growth, on the another side. Also, personal income tax and social security contributions are weakly related to gross domestic product growth. The model shows a significant effect of tax revenue growth and social security contributions, while personal income tax and corporate income tax do not have a significant impact on gross domestic product growth. Interestingly, personal income tax as the main tax form in the tax structure of the United States has no significant impact on economic growth compared to social security contributions which percentage share is lesser.

Social security contributions are important public incomes after taxes in OECD countries. Beside, social security contributions as a mean of the finance of social security system is a determiner on the main macroeconomic factors such as savings, employment, the cost of employment, the level of shadow economy, economic growth, competitiveness and income inequality. Employment has been important policy goals in Turkey like many OECD countries during recent decades. High unemployment rate is a serious problem for countries. Effecting negatively labor market, high burden of social security contributions causes low level of employment. The aim of this study is to find the relationship between social security contributions and unemployment for Turkey. Therefore, we can evaluate whether reducing social security contributions is a way reducing of unemployment or not. We use time series data during period 1965-2015. The research methodology is based on an analysis of indicators as unemployment rate, social security contributions as percentage of GDPs, the percentage of total tax revenues. Unit root test is non-stationary for social security contributions. On the other hand, unemployment is stationary for related period. The long run relationship between variables was tested by ARDL bound test approach. Based on the sample results, there is a long run cointegration between social security contributions and unemployment rate (both as percentage of GDP and percentage of taxation).

In the context of Russian Federation's full-scale war against Ukraine, the idea of conducting a radical tax reform in our country, which would provide for the establishment of corporate income tax, personal income tax and VAT rates at the same level of 10%, has become widespread, and later transformed into the idea of an "anti-corruption" tax reform. According to the reform’s supporters, lowering the rates of the main taxes will ensure the de-shadowing of the economy, destroy the grounds for corruption, and on this basis will lead to an increase in tax revenues, if not in the first year of the reform, then at least in the short term. Optimistic forecasts regarding the fiscal consequences of a radical reduction in the rates of main taxes in Ukraine are based on simplified ideas about the impact of the size of tax rates on the scale of the shadow economy and tax revenues. The purpose of the article is to refute these ideas by revealing, using the results of theoretical and empirical studies, the ambiguous nature of the relationship between tax rates and the size of the shadow economy and tax revenues. A comparative analysis of the rates of VAT, personal income tax, corporative income tax and social security contributions in Ukraine and the EU countries has been carried out, which allows to establish that none of the EU countries has ever introduced low rates for all major taxes and social security contributions, reduced the VAT rate to the level of minimum EU requirements (15%), or refused to finance pension payments through social security contributions, distributing their burden between employers and employees. The author analyzes the impact of tax rates, tax burden and other factors on the level of the shadow economy and establishes why lower tax rates do not guarantee a reduction in the scale of informal activities. The absence of a direct link between the size of tax rates and corruption is substantiated. Based on the analysis of the arithmetic and economic effects of tax rate cuts, the author determines their ambiguous impact on tax revenues. A comparative analysis has been made of the fiscal efficiency of the taxes whose rates are proposed to be reduced and of the compensating taxes, and the impossibility of compensating budget losses by increasing these taxes is substantiated. The author concludes about the high fiscal risks of a radical reduction in the rates of budget-forming taxes in general and the impossibility of such a reduction during the war.

Šiame straipsnyje analizuojama prieš penkerius metus pradėta Lietuvos socialinio draudimo senatvės pensijų struktūrinė reforma, kurios metu dalis socialinio draudimo įmokų pervedama į gyventojų pasirinktus privačius pensijų fondus. Šio straipsnio tikslas - apžvelgti reformos pradžioje jai keltus tikslus, įvertinti jų pagrįstumą socialinės apsaugos ekonomikos teorijos požiūriu, išanalizuoti pradinius pensijų reformos rezultatus. Siekiant šio tikslo išanalizuotas pensijų reformų regione pobūdis, socialinio draudimo pensijų dalinio privatizavimo Lietuvoje ypatybės, kelti privatizavimo tikslai ir besiformuojanti privačių pensijų rinką Lietuvoje. Straipsnyje remiamasi pasaulyje gerai žinomų pensijų ekonomikos tyrėjų publikacijomis, pensijų reformą reglamentuojančiais Lietuvos Respublikos įstatymais, Lietuvos valstybės institucijų skelbiama ekonomine ir socialine statistika.Autoriaus atlikta analizė rodo, kad privačių pensijų fondų klientų asmeninėse kaupiamosiose pensijų sąskaitose kaupiamo turto investicijų grąža nepadengia nuostolių, kuriuos jie patirs dėl dalinio pasitraukimo iš socialinio draudimo pensijų sistemos. Straipsnyje taip pat parodyta minėtos pensijų reformos našta, kuri tenka dabartiniams pensininkams. Pagrindinė straipsnio išvada - reformos tikslai buvo per daug ideologizuoti, o pirminiai rezultatai nepalankūs nei dabartiniams, nei būsimiems pensininkams. Lietuvoje 2004 metais įvykdytos pensijų reformos analizė akademinėje literatūroje pateikiama pirmą kartą.

We study the incidence of social security contributions (SSCs) in France relying on the strategy developed by Alvaredo et al. (De Econ, 2017. doi:10.1007/s10645-017-9294-7). This strategy infers the incidence of SSCSs from the discontinuities in earnings distributions created by kink points in the SSC schedule. Using administrative data on earnings for the period 1976–2010, we study approximately 200 such kink points and do not find that they systematically induce a discontinuity in the distribution of gross earnings. This allows us to reject the hypothesis that SSCs are incident on workers, at least locally around kinks. Additionally, we exploit the large variations in SSC rates across kinks and years to estimate the local incidence of both employer and employee SSCs around these thresholds. We find that employer SSCs are shifted to employers while employee SSCs are shifted to employees. These findings are consistent with the economic incidence of SSCs being aligned with their statutory incidence, locally around kink points.

The study analyzes the long-run and short-run tax buoyancies of Bulgaria and their relationship with Bulgaria’s economic growth. The buoyancy measures the response of tax revenue to changes in economic growth. The buoyancy indicates whether collectability of the tax on income, profit, and consumption increases. The object of this study is the collectability of aggregate tax revenues and of the revenues from different types of taxes – value added tax, personal income tax, corporate tax and social security contributions in Bulgaria. The subject of the study is the relationship of different tax revenues with economic growth. The research methods employed are the fully modified least squares (FMOLS) and autoregressive distributed lag model (ARDL). The research covers the period from the first quarter of 1999 to the second quarter of 2017 and uses the Eurostat data (78 observations). The study aims to show which type of revenues (from direct or from indirect taxes) is more important for Bulgaria’s state budget. It is shown that the buoyancies of aggregate tax revenue, personal income tax and social security contributions significantly differ from one another in the long-run. The buoyancies of the value-added tax and the corporate tax are above one in the long run. In the short-run the buoyancy of the aggregate tax revenues, the corporate tax, the income tax and the social security contributions are different from one. The short-run buoyancy of VAT exceeds one, hence dynamics of VAT revenues is sustainable. The collectability of the aggregate tax revenue, personal income tax and social security contributions has increased neither in the long run nor in the short run. It is therefore recommended that inefficient taxes, whose collectability does not increase, be reformed.

The Welfare State concept where welfare conditions are equally shared among citizens, full employment is ensured and state plays the part of a sole protector against all potential social risks has created great reaction for the whole world. After 1945–1980, accepted as the golden era of welfare state, it is observed that these practices have entered into a process of crisis. Therefore, this case study has been prepared believing that it will contribute to the issues of increasing crisis of Welfare state and social security specific to Turkey example and private pension. In this case study which is founded on an interdisciplinary approach, as a result of conceptual studies on social state and its specific historical process, it is observed, there are two different basic approaches on that the Welfare state concept has gone through crisis. While, the approach that the welfare state continues its existence by evolving outweighs, on the other hand it is suggested that liberal state has left the social state phase which was a response to a specific historical era. This case study which is mainly established on private pension system, defends the second approach among two different ones and tries to bring it into view specific for Turkey example through participants of private pension system. Although, all practices related with social state have not been completely disappeared yet, it is suggested that there is a great crisis as a result of policies especially enforced by neo-liberal institutions. The main purpose of this case study is to understand the crisis dynamics come up related with welfare state model specific to Turkey and reveal the potential of private pension practice put into force for overcoming the crisis. The main purpose of this case study is to clarify the potential of private pension system come up as a precautionary policy for providing social security concept at senility era which is accepted as a social risk in respect of fair distribution of welfare conditions for whole society and overcoming social security needs of citizens within the context of social structural dynamics specific to Turkey.

This paper investigates the relationship between social security and laobour market in Germany and calculates the regression relation among social security expenditure,social security contribution,enterprise investment and unemployment rate.The results Indicated that the labour market has a closed relevance with social security. Reducing the social security contribution of enterprise is an important means to control the unemployment.And the proper level social security expenditure is the most crucial factor to keep the beneficial cycle between social security and laobour market . Key words: Social Security Contribution; Social Security Expenditure; Labour Market

The article deals with the development of the tax and levy burden of self-employed persons in the Czech Republic from 1993 to the present. Payments for income tax and social security contributions are significant costs for entrepreneurs and have an impact on the business environment. The aim of this article is to evaluate the development of the tax and levy burden of self-employed persons in the Czech Republic using regression and correlation analysis methods. While tax reforms are relatively frequent in the area of personal income tax, and it can be concluded that the tax burden is not constant, changes in the legislative regulation of social security contribution are only minimal. However, as the results of the analysis show, social security contributions have increased significantly. The reason for this is the existence of minimum assessment bases. These minimum assessment bases are based on the average wage, and social security contributions also increase as the average wage increases. If the taxpayer’s tax base is less than or equal to the minimum assessment base, there is almost a minimal dependence between income tax and levy payments. The reason for this is that the tax burden is often zero due to the low tax base and a non-taxable minimum. If the tax base is higher, both the tax and levy burden increased but the levy burden increased significantly. However, a decrease in these payments cannot be expected due to the growing pressure on the balance of public finances. Future reforms will probably lead to an increase in both the tax and levy burden of self-employed persons.