EN Official Journal of the European Union CE 84/862

(2004/C 84 E/0954)

WRITTEN QUESTION E-0741/04

by José García-Margallo y Marfil (PPE-DE) to the Commission

(11 March 2004)

Subject: Fiscal incentives to encourage job creation

Has the Commission any precise statistics concerning job creation within the European Union as a result of fiscal incentives offered to companies which provide jobs for certain population groups (women, young people, etc.)?

Have any studies been carried out which analyse — from a cost-benefit point of view — the effect which reducing the levies imposed on employment (including social-security contributions) has on the labour market?

Has any analysis been carried out into whether or not such a reduction could jeopardise budget stability and whether or not a moderate increase in indirect taxation would be sufficient to counter that risk?

Answer given by Mr Dimas on behalf of the Commission

(26 April 2004)

There are no EU level statistics on the employment effects of fiscal incentives for enterprises.

However, some Member States report in their national actions plans for employment and in their evaluations on these plans that the reduction in social security contributions (SSC) from enterprises, have significant effects on employment when they are targeted. In France, it was estimated that a FFR 40 billion reduction of employers' SSC had created 106-170000 jobs between 1993 and 1999 (plus 67000 jobs through the introduction of the 35-hours week). Reduced employers' SSC have even reversed the upward trend in unskilled labour.

Moreover, a Spanish report provides econometric estimates of the elasticity of employment with respect to different types of taxes; it concludes that, despite some methodological uncertainties, a reduction of employers' SSC has, by far, the most positive employment effects. Similar conclusions are reached in a Belgian report, on the basis of macro-simulations from the Federal Planning Bureau (23000 jobs created by a EUR 1,2 billion reduction of employers' SSC; 10700 jobs created in the social profit sector by a EUR 0,25 billion reduction). The ultimate criterion used here is the number of jobs created per billion euro net investment in different measures, where the term ‘net investment’ means that feedback effects have been taken into account (through wage and price adjustments, government budgets, consumption, etc.).

It is widely accepted that the tax burden on labour is a crucial determinant of labour supply decisions, notably for low-income earners, people starting their working career and members of single earner households with children (1). However, there is insufficient empirical evidence on the macroeconomic effects on employment of the reduction in tax and social security contributions (2), despite the results of the mentioned modelling researches. An accurate evaluation of net effects on employment should take into account the dead-weight, and the substitution and displacement effects. And these effects are difficult to evaluate.

As mentioned earlier there is still insufficient research evidence on the macroeconomic effects of a reduction in tax and social security contributions. However, there is some evidence on the double dividend effect, obtained in macroeconomic simulation studies. These studies generally show that environmental tax reforms may have a small positive impact on employment without jeopardizing budget stability, when the revenues from increased environmental taxes are used to reduce employers' social security contributions. We expect to be able to provide some more information on the effects of a reduction in tax and social security contributions in the EC publication ‘Employment in Europe 2004’.

(1) See for further information the EC publication ‘Employment in Europe 2003’, September 2003 (Chapter 3).

(2) Some indications can be found in the ‘Impact evaluation of the European Employment strategy. Technical analysis’ from the Commission and in the OECD (1999), ‘Benefit systems and work incentives’ but also in the EC Economic Paper No 183 ‘How much has labour taxation contributed to European structural employment?’, dated May 2003. See for further information http://europa.eu.int/comm/employment_social/employment_strategy/impact_en.htm