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We use harmonized survey data from the Luxembourg Income Study to assess the redistributive impact of taxes and transfers across 22 OECD countries over the 1999–2016 period. After imputing missing tax data (employer social‐security contributions), we measure the reduction in income inequality from four key levers of tax and transfer systems: the average tax rate, tax progressivity, the average transfer rate, and transfer targeting. Our methodological improvements produce the following results. First, tax redistribution dominates transfer redistribution (excluding pensions) in most countries. Second, targeting explains very little of the cross‐country variation in inequality reduction. In contrast, both tax progressivity and the average tax rate have large impacts on redistribution. Last, there seem to be political tradeoffs: high average tax rates are not found together with highly progressive tax systems.

The paper analyses the motives for and results of the labour tax reforms undertaken by the Latvian government in 2011-2013 with a special focus on the lowwage sector. The reforms were developed with the goal of overcoming negative effects on the labour market caused by the deep economic crisis in 2008-2010 as well as of coping with an increase in labour tax burdens during consolidation. In 2008-2010, Latvia was seriously affected by the global economic crisis and during these years real gross domestic product (GDP) declined by 21 percent. Labour market conditions became worse rapidly and at the beginning of 2010, the unemployment rate reached 21.5 per cent of the economically active population. For the period of 2011-2016, the reforms provide for a reduction in the rates of personal income tax (PIT) and social security contributions (SSC) as well as for an increase in PIT allowances. Taking into account the changes made in labour tax laws, we employed forecasts of average wages and applied the Eurostat methodology to calculate the tax wedge for different groups of employees depending on income level and on the number of their dependants. The results show that the impact of the reform varies greatly and it is more beneficial for employees with dependants and for low-wage earners. The findings of the paper contribute to policy discussions and decisions on the tax wedge, especially in the Euro area. In the period covered by the paper, about half of the Euro area member states (including Latvia) received a country-specific recommendation to address this issue in the context of the European Semester.

PurposeAs China shifts from a “human capital demographic dividend” to a “demographic dividend” as a source of economic growth, this paper examines the influence of social security system improvement on enterprises efforts to attract talent and enhance innovation ability.Design/methodology/approachThis study uses a sample of Chinese listed firms from 2008 to 2019 to analyse the influences of social security contributions on enterprise innovation, and the mediating effect of human capital accumulation. The OLS, DID test, placebo test, 2SLS are used to test the research questions.FindingsThe authors find a significant positive correlation between social security contributions and enterprise innovation because social security contributions improve the accumulation of human capital, helping enterprises to attract talent, which in turn has a positive impact on corporate innovation. The positive correlation between social security contributions and enterprise innovation is more significant in private enterprises, STAR Market and GEM listed companies and labour-intensive enterprises.Practical implicationsThese findings provide a theoretical basis for the formulation of relevant policies and the current reform of social security collection in China. The findings also have practical significance for the sustainable development of China's economy given its ageing population.Originality/valueThis study provides a new perspective, that is, from the perspective of human capital accumulation, to discuss the impact of social security contributions on enterprise innovation, and enriches the relevant literature on the economic consequences of social security contributions and the influencing factors of corporate innovation.

With the growing global emphasis on the transition to green energy, understanding the drivers of renewable energy investment (REI) has become a critical area of research. However, the role of social security contributions (SSCs) as a fiscal instrument influencing REI remains unexplored. This study examines whether SSCs stimulate renewable energy investment and assesses the extent to which innovation influences this relationship. Using newly compiled SSC data for 35 OECD countries over the period 1996–2022, the analysis applies the Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) framework to capture dynamic effects and cross-country dependence. The results show that both social security contributions and technological innovation promote REI. In addition, technological innovation strengthens the positive impact of social security contributions on clean energy investment, indicating that SSCs are effective in innovative OECD economies. The results suggest that policymakers in OECD countries should allocate a significant portion of SSC revenues to green energy initiatives and innovation. Furthermore, increasing investment in green energy research and development could strengthen the link between SSCs and innovation, thereby accelerating the clean energy transition.

This paper studies the macroeconomic and welfare implications of the distribution of the social security tax between employees and employers using a general equilibrium framework. We calibrate a dynamic general equilibrium model for the average of OECD countries and find that increasing the share of social security contributions paid by employers has a positive effect on economic activity and welfare. Whereas raising the employer’s share increases the labor cost for firms and reduces the equilibrium gross wage, conversely, workers’ net labor income increases, increasing employment, output, and welfare. The response of the economy to the change in the distribution of social security contributions between employees and employers depends on how the total labor tax wedge changes, which is also affected by the labor income tax and the consumption tax, as distortionary effects from one tax are not independent from the other taxes driving wages’ purchasing power.

Austria, Croatia, Hungary, Italy and Slovenia differ not only in level of average gross wage but also in the overall taxation of wages. While Croatia, Hungary and Slovenia tax the average gross wage less than Italy and Austria, a comparison of gross wages that are in absolute values close to the average gross wages of Italy and Austria or higher shows the reverse, i.e. it reveals a considerably higher taxation in the former three countries.

We exploit kinks and notches in the UK personal tax schedule over a 40-year period to investigate how taxpayers respond to income tax and social security contributions. At kinks, where the marginal rate rises, we find bunching by company owner-managers and the self-employed, but not those with only employment income. Responses to notches, where the average rate rises, provide compelling evidence that this is because most employees face substantial frictions: fewer than a quarter bunch even where doing so would increase both consumption and leisure. We develop a new approach for identifying selection in who responds and for decomposing responses into hours and wage components. We find that those employees who do bunch at notches are almost exclusively part-time workers, but tend to have lower wages and work more hours than those part-time workers who do not bunch.

The aging of society is one of the most important trends shaping the social, economic and political life of the 21st century. However, with the increasing number of people of retirement age, the problem of ensuring adequate conditions for a longer life arises. The state influences these conditions through the pension security system, including taxation of pensions. The paper attempts to answer the question whether taxation of remunerations and public pension benefits may have a significant impact on making decisions about choosing a country of work in the common market. For this purpose, Member States have been ranked in terms of two dimensions—the conditions of taxation of wages and the conditions of taxation of retirement benefits.

PurposeThis paper develops novel proxies for labour tax avoidance (LTAV) and tests their validity within a sample of 189 labour tax-avoidant offending firms (LTAOFs) accused of evading social security contributions (SOCs) by public authorities.Design/methodology/approachLTAV proxies are based on abnormal values of SOCs paid, reported in the income statements of a sample of 857,790 Spanish firm-years for the period 2001–2015, estimated through two-stage least square panel data regressions with firm fixed effects.FindingsThe results reveal that proxies specifically built to signal both conforming and non-conforming LTAV can provide evidence of abnormally low SOCs as expenses within the sample of LTAOFs. Furthermore, firm-specific financial variables as well as macroeconomic variables significantly influence LTAV.Research limitations/implicationsThis study could foster further research on the efficacy of the LTAV proxies and on the drivers and sustainability implications of LTAV for firms and their stakeholders in different socio-economic and institutional contexts.Practical implicationsThese LTAV proxies could integrate other methods applied to estimate the undeclared work and its trends. Furthermore, they may assist tax authorities to direct their inspections, detect labour tax evasion and then strengthen the social protection of the employees from employers' illegal exploitation practices, as well as reducing tax revenue shortfalls and related sustainability concerns in the social security systems.Originality/valueThis study proposes a novel methodology to examine LTAV and its determinants through accounting information. This methodology may support researchers to provide a more comprehensive picture of tax planning strategies pursued by companies, that include LTAV, and in this way integrate the extant mature literature on income tax avoidance.

All countries in the former transition economies of Central, Eastern, and Southern Europe have undertaken public pension reforms of varying depth and orientation, often with the support of the World Bank. Although the reformed public pension schemes provide broad benefit adequacy, in most cases additional measures are needed to achieve fiscal sustainability in an aging society. 'Adequacy of Retirement Income after Pension Reforms in Central, Eastern, and Southern Europe: Eight Country Studies' assesses the benefit adequacy of the reformed pension systems for eight countries—Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania, the Slovak Republic, and Slovenia—to identify policy gaps and options. The authors identify the motivations for reform against the backdrop of the trend toward multi-pillar arrangements, document key provisions, and compare them in the context of the World Bank's five-pillar paradigm for pension reform. They then evaluate the sustainability and adequacy of reformed pension systems and provide recommendations to address gaps and take advantage of opportunities for further reforms. The case studies and summary suggest the following broad policy conclusions: • Fiscal sustainability has improved in most study countries, but few are fully prepared for the inevitability of population aging. • The linkage between contributions and benefits has been strengthened, and pension system designs are better suited to market conditions • Levels of income replacement are generally adequate for all but some categories of workers (including those with intermittent formal sector employment or low lifetime wages), and addressing their needs requires initiatives that go beyond pension policy. • Further reforms should focus on extending labor force participation by the elderly to avoid benefit cuts that could undermine adequacy and very high contribution rates that could discourage formal sector employment. • More decisive financial market reforms are needed for funded provisions to deliver on the expectations of participants and keep funded pensions safe. This book will be of interest to policy makers, researchers, and everyone interested in the topic of pensions in the region, and beyond.