Evaluation of the Swedish Earned Income Tax Credit

40 Pages Posted: 27 May 2012

See all articles by Karin Edmark

Karin Edmark

Research Institute of Industrial Economics

Eva Moerk

IFAU - Institute for Labour Market Policy Evaluation; Uppsala University - Department of Economics; IZA Institute of Labor Economics

Che-Yuan Liang

Uppsala University - Department of Economics

Hakan Selin

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

Date Written: January 17, 2012

Abstract

Over the last twenty years we have seen an increasing use of in-work tax subsidies to encourage labor supply among low-income groups. In Sweden, a non-targeted earned income tax credit was introduced in 2007, and was reinforced in 2008, 2009 and 2010. The stated motive of the reform was to boost employment; in particular to provide incentives for individuals to go from unemployment to, at least, part-time work. In this paper we try to analyze the extensive margin labor supply effects of the Swedish earned income tax credit reform up to 2008. For identification we exploit the fact that the size of the tax credit, as well as the resulting average tax rate, is a function of the municipality of residence and income if working. However, throughout the analysis we find placebo effects that are similar in size to the estimated reform effects. In addition, the results are sensitive with respect to how we define employment, which is especially true when we analyze different subgroups such as men and women, married and singles. Our conclusion is that the identifying variation is too small and potentially endogenous and that it is therefore not possible to use this variation to perform a quasi-experimental evaluation of the Swedish EITC-reform.

Keywords: labor supply, labor force participation, tax incentives

JEL Classification: J21, H24

Suggested Citation

Edmark, Karin and Moerk, Eva and Liang, Che-Yuan and Selin, Hakan, Evaluation of the Swedish Earned Income Tax Credit (January 17, 2012). IFN Working Paper No. 901, Available at SSRN: https://ssrn.com/abstract=2066470 or http://dx.doi.org/10.2139/ssrn.2066470

Karin Edmark (Contact Author)

Research Institute of Industrial Economics ( email )

Box 55665
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se\karine

Eva Moerk

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

IZA Institute of Labor Economics

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

Che-Yuan Liang

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

Hakan Selin

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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