Asymmetric dynamics in the social contributions and social benefits nexus in Greece

This paper studies the existence of asymmetries and the presence of a causal relationship between social benefits and social contributions in Greece over the period 1999Q1–2016Q4 using threshold cointegration estimation techniques (TAR and MTAR models) and asymmetric error-correction model estimation. In doing so the study applies conventional and quantile unit root tests to examine the order of integration of the variables. The empirical results support the hypothesis that social benefits and social contributions are cointegrated with threshold adjustment and the adjustment process is asymmetric both in the short and long run. ECM model estimation indicates that the response of the government to a worsening budget is significantly larger than to an improving budget, and the adjustment path towards momentum equilibrium takes place through social contributions, when the budget is in its negative phase (below threshold). Granger causality tests and distributed lag asymmetry tests indicate that social benefits represent an exogenous variable.