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Lifetime versus Annual Tax Progressivity: Sweden, 1968-2009

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  • Niklas Bengtsson
  • Bertil Holmlund
  • Daniel Waldenström

Abstract

This paper analyzes the evolution of tax progressivity in Sweden from both annual and lifetime perspectives. Using a rich micro panel with administrative records of incomes, taxes and benefits over the period 1968–2009, we calculate tax rates across the income distribution accounting for different tax bases as well as the role of transfers. The uniquely long time span also allows us to compute tax progressivity as realized over a cohort’s entire life cycle. Our main finding is that taxes are considerably less progressive over the lifetime than in any single year. In fact, life cycle taxes are close to proportional, bearing a redistributive effect of only a few percent. Intragenerational income mobility seems to be driving this result, but the Swedish economic crisis of the 1990s and the tax reforms of 1971 and 1991 are also important events. Labor income taxes contribute less to progressivity in recent years, whereas transfers to unemployed and old-age pensioners have become increasingly important. Our findings are robust to using different tax rates, tax bases, sample populations, discount rates and re-ranking controls.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3856.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3856

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Keywords: tax progressivity; income distribution; lifetime income; redistributive effect; Kakwani index; transfers;

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References

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  1. Anthony B. Atkinson & Andrea Brandolini, 2011. "On the identification of the “middle class”," Working Papers 217, ECINEQ, Society for the Study of Economic Inequality.
  2. Blomquist, N S, 1981. "A Comparison of Distributions of Annual and Lifetime Income: Sweden around 1970," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 27(3), pages 243-64, September.
  3. Erik Caspersen & Gilbert Metcalf, 1993. "Is A Value Added Tax Progressive? Annual Versus Lifetime Incidence Measures," NBER Working Papers 4387, National Bureau of Economic Research, Inc.
  4. Andreas Peichl & Philippe van Kerm, 2007. "PROGRES: Stata module to measure distributive effects of an income tax," Statistical Software Components S456867, Boston College Department of Economics.
  5. Ivica Urban & Peter J. Lambert, 2005. "Redistribution, horizontal inequity and reranking: how to measure them properly," University of Oregon Economics Department Working Papers 2005-12, University of Oregon Economics Department.
  6. Björklund, Anders & Palme, Mårten, 1997. "Income Redistribution within the Life Cycle versus between Individuals: Empirical Evidence Using Swedish Panel Data," Working Paper Series in Economics and Finance 197, Stockholm School of Economics.
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Cited by:
  1. Augustin Vicard & Fabrice Langumier & Alexis Eidelman, 2013. "Prélèvements et transferts aux ménages : des canaux redistributifs différents en 1990 et 2010," Économie et Statistique, Programme National Persée, vol. 459(1), pages 5-26.
  2. Sina Önder, Ali & Terviö, Marko, 2013. "Is Economics a House Divided? Analysis of Citation Networks," Working Paper Series 2013:5, Uppsala University, Department of Economics.
  3. Sara Torregrosa Hetland, 2014. "A fiscal revolution? Progressivity in the Spanish tax system, 1960-1990," Working Papers 2014/8, Institut d'Economia de Barcelona (IEB).
  4. Mike Brewer & Monica Costa Dias & Jonathan Shaw, 2012. "Lifetime inequality and redistribution," IFS Working Papers W12/23, Institute for Fiscal Studies.

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