Tax Reform Evaluation Using Nonparametric Methods: Sweden 1980 - 1991

Abstract

This paper evaluates the tax reforms carried out in Sweden between 1980 and 1991. We use a recently developed nonparametric estimation technique to account for labor supply responses. We decompose the tax returns to study how the separate components influence hours of work, tax revenues distribution. The results indicate that the reform was underfinanced and that the increased indirect taxation and redesigned transfer system almost eliminated the positive effects on hours of work due to the decreased marginal taxes on labor income. Further the predictions of a parametric estimated labor supply model. The responses of the parametric model is almost twice the size of the nonparametric.