The Effects on Unemployment of Reducing Social Security Contributions: A General Equilibrium Analysis for Belgium

Abstract

At the end of 1987, a group of Belgian economists. mainly faculty from all French-speaking universities, suggested, in view of increasing employment to reduce social security contributions borne by firms and to compensate the resulting loss in government income by an increase of excise and value added tax rates.We construct a general equilibrium model to study the consequences of such a measure and show that the reduction of unemployment is twice as large as what calculations using macroeconomic models had shown. Planning Bureau, who attended the meetings and signed the proposals without involving the Bureau).3 Described in Une refonne du systeme fiscal pour donner la priorit.e a l'emploi, Cahiers Economiques de Bruxelles 119 (1988), 285-291. 4 They also compute the consequences of a 40% cut; this seems, to us at least, quite unrealistic.