Tax Policy and Employment: How Does the Swedish System Fare?

59 Pages Posted: 23 Feb 2011

See all articles by Jukka Pirttila

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Hakan Selin

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 22, 2011

Abstract

This paper reviews the literature on optimal taxation of labour income and the empirical work on labour supply and the elasticity of taxable income in Sweden. It also presents an overview of Swedish taxation of labour income, offers calculations on the development in effective marginal tax rates and participation tax rates, and estimates, using the difference-in-differences method, the impact of tax incentives on employment rates of elderly workers. After this background, we ponder possibilities for reforming the Swedish tax system to improve its labour market impacts. We suggest better targeting the earned income tax credit at families and low-income workers, lowering the top marginal tax rates, and maintaining the tax incentives for older workers.

Keywords: optimal taxation, labour income taxation, labour supply, taxable income, Swedish tax system

JEL Classification: H210, H240, J220

Suggested Citation

Pirttila, Jukka and Selin, Hakan, Tax Policy and Employment: How Does the Swedish System Fare? (February 22, 2011). CESifo Working Paper Series No. 3355. Available at SSRN: https://ssrn.com/abstract=1766387

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

Hakan Selin (Contact Author)

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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