Policy Seminar: Earnings responses to discontinuities in social security contributions: an application of the bunching approach

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Maja Micevska Scharf (CPB)

Discussant: Koen Caminada (Leiden University)

Language: English

Registration:  Please register by sending an email to polinars@cpb.nl.

Abstract subject:
We analyze the effects of social security contributions (SSC) by applying the bunching approach to thresholds in the schedule in the Netherlands. We consider four types of contributions covering unemployment insurance, disability insurance, health insurance, and occupational pensions. These schemes feature in total five thresholds, at which marginal rates change. The basic idea is that a discontinuity in the marginal rate should cause a discontinuity in the distribution of at least one of three earnings concepts: labour costs, gross earnings and net earnings. We use a rich administrative dataset containing observed payments on most SSC for the entire working population for the years 2006-2012. Our finding that the density of gross earnings is continuous around the thresholds is consistent with the results in recent empirical studies. More puzzling is the finding of a continuous distribution of both net earnings and labour costs. This lack of bunching can be mainly explained by the complexity of the institutional system and the rather small changes in marginal rates.

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