Abstract. This paper examines the macroeconomic role of labor taxation in Greece, focusing on the dynamic interaction between social security contributions (SSC) and real economic activity. Using a vector autoregressive framework, we document a pronounced asymmetry in the relationship between these variables. While increases in SSC exert a statistically and economically negative effect on GDP, feedback from GDP to SSC is negligible. The results indicate that SSC exhibits extreme persistence (0.95) and exerts a negative effect on GDP (-0.365), while GDP has negligible feedback on SSC. These findings suggest that SSC in Greece operates as a rigid, quasi-exogenous fiscal instrument that constrains growth. The results indicate that SSC behaves as a highly persistent and institutionally rigid policy variable, largely insulated from cyclical economic conditions. This asymmetry suggests that labor taxation operates as an exogenous constraint on growth rather than as an automatic stabilizer. Impulse response analysis and forecast error variance decomposition suggest that SSC shocks play a substantial role in driving output fluctuations. The findings contribute to the literature on taxation and macroeconomic performance by providing country-specific evidence on the structural role of labor tax rigidity and its implications for policy design in fiscally constrained economies.

Keywords: social security contributions, fiscal rigidity, fiscal sustainability, structural reforms, Greece.