Social security contributions paid by firms were massively reduced in January 2016. We employ a state-of-the-art DSGE model to assess the effects of this measure on output, private consumption, and other key macroeconomic variables. We find that it significantly boosts GDP and consumption while reducing inflation and that these effects are sizable both in the short-term and in the long-term. We also report that the short-term impact is significantly stronger under an inflation targeting regime than under exchange rate stabilization.
Engler, P., Voights, S., Kirchner, R., Betliy, O. (2016). Economic impact of the recent decrease in social security contributions. A model based analysis. German Advisory Group Policy Brief, Series 09-2016.
Engler, P., Ganelli, G., Tervela, J., Voights, S. (2014). Fiscal devaluation in a monetary union. Working Paper, 14 (201). International Monetary Fund. https://doi.org/10.5089/9781484312131.001