Analysis of Alternative Financing Models for Social Insurance Systems

This paper studies three approaches to reform: expanding the contribution base, changing the employers' contribution into a tax on the value added, and a greater share of financing derived from general taxation. Raising the ceiling on insurable earnings and extending the contribution base to other types of income would open a considerable margin to reduce rates levied on income from work and thus the payroll costs. If the employers' contributions to the social insurance scheme and payroll taxes had been replaced by a tax on the value added (at a rate yielding the same revenues) in 2000, about € 900 million more would have been in the state coffers in 2005 than were actually received under the current wage-based system. In view of international experience, consideration should be given to increasing the share of taxes in financing the social welfare system. Non-insurance-based benefits (co-insurance without payment of contributions, etc.) in particular could be financed by taxes rather than wage-based contributions.