Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden
AbstractAlthough there is a large literature on employment effects of earned income tax credits (EITCs) and unemployment benefits, less is known about wage effects. In our model the impact is via the net (after-tax) replacement rate. Using a panel of individuals from Sweden, we find a positive relationship between the net replacement rate and wages with semi-elasticities in the range 0.2-0.4. This implies that a one percent reduction in the unemployment benefit level or a one percent increase in the net-of-tax rate is associated with a fall in the before-tax wage of 0.1-0.2 per cent. EITCs and unemployment benefit reductions are thus likely to induce wage moderation.
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Bibliographic InfoPaper provided by IFAU - Institute for Evaluation of Labour Market and Education Policy in its series Working Paper Series with number 2013:12.
Length: 29 pages
Date of creation: 10 May 2013
Date of revision:
Earned income tax credit; unemployment benefits; wage formation;
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-06-09 (Accounting & Auditing)
- NEP-ALL-2013-06-09 (All new papers)
- NEP-EUR-2013-06-09 (Microeconomic European Issues)
- NEP-LAB-2013-06-09 (Labour Economics)
- NEP-LMA-2013-06-09 (Labor Markets - Supply, Demand, & Wages)
- NEP-LTV-2013-06-09 (Unemployment, Inequality & Poverty)
- NEP-PBE-2013-06-09 (Public Economics)
- NEP-PUB-2013-06-09 (Public Finance)
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