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Evaluation of an In-Work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers

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  • Aaberge, Rolf

    ()
    (Statistics Norway)

  • Flood, Lennart

    ()
    (University of Gothenburg)

Abstract

The purpose of this paper is to evaluate a recent Swedish in-work tax credit reform where we pay particular attention to labor market exclusion; i.e. individuals in as well as outside the labor force are included in the analysis. To highlight the importance of the joint effects from the tax and the benefit systems it appears particular relevant to analyze the labor supply behavior of single mothers. To this end, we estimate a structural microeconometric model of labor supply and welfare participation. The model accounts for heterogeneity in consumption-leisure preferences as well as for constraints in job opportunities. The results of the evaluation show that the reform generates welfare-gains for virtually every single mother, and moreover benefits low-income households. Finally, due to increased labor supply and decline in welfare participation we find that this reform is almost self-financing.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3736.

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Length: 43 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3736

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Keywords: labor supply; single mothers; in-work tax credit; social assistance; random utility model;

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Citations

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Cited by:
  1. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "An Evaluation of the Swedish Earned Income Tax Credit," Working Paper Series 901, Research Institute of Industrial Economics.
  2. Ericson, Peter & Flood, Lennart, 2009. "A Microsimulation Approach to an Optimal Swedish Income Tax," IZA Discussion Papers 4379, Institute for the Study of Labor (IZA).
  3. Jukka Pirttilä & Hakan Selin, 2011. "Tax Policy and Employment: How Does the Swedish System Fare?," CESifo Working Paper Series 3355, CESifo Group Munich.
  4. Bosch, Nicole & van der Klaauw, Bas, 2009. "Analyzing female labor supply -- Evidence from a Dutch tax reform," CEPR Discussion Papers 7337, C.E.P.R. Discussion Papers.
  5. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "Evaluation of the Swedish earned income tax credit," Working Paper Series, Center for Labor Studies 2012:3, Uppsala University, Department of Economics.
  6. 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.
  7. Colombino, Ugo, 2014. "Five Crossroads on the Way to Basic Income: An Italian Tour," IZA Discussion Papers 8087, Institute for the Study of Labor (IZA).
  8. 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.
  9. Ericson, Peter & Flood, Lennart & Wahlberg, Roger, 2009. "SWEtaxben: A Swedish Tax/benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform," Working Papers in Economics 346, University of Gothenburg, Department of Economics.

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