Social security contributions,economic activity,and distribution

Deductions from private income occupy a central role in the discussion of current economic problems. One hypothesis stated frequently claims that an increasing social security burden depresses economic activity. A reduction in contributions is evaluated within the macroeconometric F&T-Model. It leads to the desired systematic changes in economic activity and distribution. Demand and employment rise while the disburdening of profits exceeds that of wages and salaries thereby inducing additional private investment. These results hold even if the loss in contributions is compensated by a decrease in subsidies of the same amount. Although profits have to pay for the disburdening of wages and salaries in the course of the simulation the losses in profits are over-compensated by effects arising from increased economic activity.