Evaluation of an In-Work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers

43 Pages Posted: 6 Oct 2008

See all articles by Rolf Aaberge

Rolf Aaberge

Statistics Norway; Institute for the Study of Labor (IZA); Deaprtment of Economics

Lennart Flood

Goeteborg University - School of Business, Economics and Law; IZA Institute of Labor Economics

Abstract

The purpose of this paper is to evaluate a recent Swedish in-work tax credit reform where we pay particular attention to labor market exclusion; i.e. individuals in as well as outside the labor force are included in the analysis. To highlight the importance of the joint effects from the tax and the benefit systems it appears particular relevant to analyze the labor supply behavior of single mothers. To this end, we estimate a structural microeconometric model of labor supply and welfare participation. The model accounts for heterogeneity in consumption-leisure preferences as well as for constraints in job opportunities. The results of the evaluation show that the reform generates welfare-gains for virtually every single mother, and moreover benefits low-income households. Finally, due to increased labor supply and decline in welfare participation we find that this reform is almost self-financing.

Keywords: labor supply, single mothers, in-work tax credit, social assistance, random utility model

JEL Classification: J22, I38

Suggested Citation

Aaberge, Rolf and Flood, Lennart, Evaluation of an In-Work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers. IZA Discussion Paper No. 3736, Available at SSRN: https://ssrn.com/abstract=1278937 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Rolf Aaberge (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Deaprtment of Economics ( email )

Norway

Lennart Flood

Goeteborg University - School of Business, Economics and Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46 31 773 1331 (Phone)
+46 31 773 1043 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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