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An Evaluation of the Swedish Earned Income Tax Credit

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Author Info

  • Edmark, Karin

    ()
    (Research Institute of Industrial Economics (IFN))

  • Liang, Che-Yuan

    ()
    (Department of Economics)

  • Mörk, Eva

    ()
    (Department of Economics)

  • Selin, Håkan

    ()
    (Department of Economics)

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.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 901.

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Length: 39 pages
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:hhs:iuiwop:0901

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Keywords: Labor supply; Labor force participation; Tax incentives;

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References

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  1. Alexander M. Gelber & Joshua W. Mitchell, 2009. "Taxes and Time Allocation: Evidence from Single Women," NBER Working Papers 15583, National Bureau of Economic Research, Inc.
  2. Jesse Rothstein, 2009. "Is the EITC as Good as an NIT? Conditional Cash Transfers and Tax Incidence," Working Papers 1160, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Nada Eissa & Hilary Hoynes, 2005. "Behavioral Responses to Taxes: Lessons from the EITC and Labor Supply," NBER Working Papers 11729, National Bureau of Economic Research, Inc.
  4. Ericson, Peter & Flood, Lennart & Wahlberg, Roger, 2009. "SWEtaxben: A Swedish Tax/Benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform," IZA Discussion Papers 4106, Institute for the Study of Labor (IZA).
  5. Kolm, Ann-Sofie & Tonin, Mirco, 2010. "In-work benefits and unemployment," Discussion Paper Series In Economics And Econometrics 80217, Economics Division, School of Social Sciences, University of Southampton.
  6. Flood, Lennart & Pylkkänen, Elina & Wahlberg, Roger, 2003. "From Welfare to Work: Evaluating a Proposed Tax and Benefit Reform Targeted at Single Mothers in Sweden," IZA Discussion Papers 891, Institute for the Study of Labor (IZA).
  7. Aaberge, Rolf & Flood, Lennart, 2008. "Evaluation of an In-Work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers," IZA Discussion Papers 3736, Institute for the Study of Labor (IZA).
  8. Forslund, Anders, 2009. "Labour supply incentives, income support systems and taxes in Sweden," Working Paper Series 2009:30, IFAU - Institute for Evaluation of Labour Market and Education Policy.
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Cited by:
  1. Laun, Lisa, 2012. "The effect of age-targeted tax credits on retirement behavior," Working Paper Series 2012:18, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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