Who Bears the Burden of Social Security Contributions in the Netherlands? Evidence from Dutch Administrative Data

This paper sheds light on the incidence of social security contributions (SSC) in the Netherlands. Our unique dataset on earnings inclusive and exclusive of these SSC enables us to apply the methodology by Alvaredo et al. (De Econ. doi:10.1007/s10645-017-9294-7, 2017) and draw clear conclusions on local incidence. First, our finding of a smooth distribution of gross earnings indicates that both employer and employee do not shift their contributions. This contradicts the standard incidence prediction of full shifting of SSC to employees but corroborates recent findings. Moreover, it is hard to reconcile with the standard static model of labour supply and demand where gross earnings are irrelevant. Second, our finding of a discontinuity in labour costs supports our conclusion of non-shifting and renders out measurement error as an alternative explanation. Overall, these findings suggest that the statutory split matters and that the burden of SSC close to thresholds is borne by employers.