The effect of age-targeted tax credits on labor force participation of older workers

I analyze the effect of income tax policy changes on labor force participation of older workers. I exploit two age-targeted policy initiatives to promote work at older ages simultaneously implemented in Sweden in 2007: an earned income tax credit and a payroll tax credit for workers above age 65. Using an age-based discontinuity in eligibility criteria, I conduct a difference-in-differences analysis with the reform as an instrument for the net-of-tax rate. I find a participation elasticity with respect to the net-of-participation-tax rate of about 0.22 in the year following the 65th birthday for individuals who were working four years earlier.