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Social Insurance, Informality, and Labor MarketsHow to Protect Workers While Creating Good Jobs$
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Markus Frölich, David Kaplan, Carmen Pagés, Jamele Rigolini, and David Robalino

Print publication date: 2014

Print ISBN-13: 9780199685233

Published to Oxford Scholarship Online: March 2015

DOI: 10.1093/acprof:oso/9780199685233.001.0001

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Alternative Ways of Pricing and Financing Social Insurance*

Alternative Ways of Pricing and Financing Social Insurance*

(p.465) 15 Alternative Ways of Pricing and Financing Social Insurance*
Social Insurance, Informality, and Labor Markets

Robert Gillingham

Alain Jousten

Oxford University Press

Social insurance systems vary widely in terms of coverage of workers and risks, financing sources and the structure and generosity of benefits. The predominant source of financing for social insurance comes from “deductions” from payrolls. These deductions are typically categorized as either “taxes” or “contributions,” but they share the characteristics of both. Any analysis of how best to finance social insurance must thus start from an analysis of social insurance pricing: a decomposition of the insurance component (the true contribution) from the pure tax component (the true tax). Only then can an informed discussion about reforming financing mechanisms proceed. After reviewing the structure of social insurance financing and taxes in Latin America, this chapter discusses the problems with payroll financing of social insurance. It then presents options for addressing these problems. After that it ties these problems to the level of informality. Finally, it describes the challenges faced by policymakers in deciding how best to finance social insurance.

Keywords:   social security, taxes, payroll financing, Latin America, social insurance pricing

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