The Tax System as a Tool for Minimizing Financial Risks in Social Security: a Financial and Legal Perspective

Abstract

The article is devoted to a comprehensive study of the tax system as a tool for minimizing financial risks in the field of social security. The relevance of the research is driven by the need to ensure the financial stability of social protection systems under conditions of economic instability, demographic challenges, and increasing pressure on public budgets. The aim of the article is to identify mechanisms and instruments of tax policy that can effectively minimize financial risks in the sphere of social security from the perspective of financial law. The study employs a systems approach, comparative analysis methods, a formal-legal method, and financial-legal modeling. The theoretical foundations of the interrelationship between the tax system and social security are examined; types of financial risks within the social protection system are analyzed; and legal mechanisms of tax regulation aimed at ensuring the financial stability of social funds are characterized. International experience in the use of tax instruments is also considered. An analysis of data from European countries and Ukraine is conducted regarding the level of tax burden, the structure of social contributions, the share of GDP allocated to social expenditures, and the deficit levels of pension and social funds. It is established that in EU countries a higher level of fiscal discipline and diversification of social financing sources helps reduce deficit risks, whereas Ukraine remains dependent on government transfers and continues to face a limited resource base. It is determined that effective tax policy can reduce the risk of funding deficits in social programs through revenue diversification, stimulation of economic activity, and the creation of reserve mechanisms. Recommendations are proposed for improving national tax legislation, including earmarked taxes, optimization of unified social contribution rates, and incentives for participation in voluntary pension schemes. Particular attention is given to distinguishing the legal nature of the unified social contribution as a consolidated insurance payment that falls outside Ukraine's tax legislation from its statistical classification under OECD methodology, which treats compulsory social contributions as tax revenue for the purposes of international comparison. Practical proposals are substantiated regarding the introduction of a differentiated unified social contribution rate, the establishment of a reserve fund for the pay-as-you-go pension system, and the improvement of tax administration to reduce the risk of income being shifted into the shadow economy.