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Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden

Author

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  • Helge Bennmarker

    ()

  • Lars Calmfors

    ()

  • Anna Seim

    ()

Abstract

Although 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 per cent reduction in the unemployment benefit level or a one per cent 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. Copyright Bennmarker et al.; licensee Springer. 2014

Suggested Citation

  • Helge Bennmarker & Lars Calmfors & Anna Seim, 2014. "Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-20, December.
  • Handle: RePEc:spr:izalpo:v:3:y:2014:i:1:p:1-20:10.1186/s40173-014-0026-1
    DOI: 10.1186/s40173-014-0026-1
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    References listed on IDEAS

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    1. Robert Shimer & Iván Werning, 2007. "Reservation Wages and Unemployment Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1145-1185.
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    3. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "Evaluation of the Swedish earned income tax credit," Working Paper Series, Center for Fiscal Studies 2012:2, Uppsala University, Department of Economics.
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    Cited by:

    1. Emmanuel Saez & Benjamin Schoefer & David Seim, 2017. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," NBER Working Papers 23976, National Bureau of Economic Research, Inc.
    2. Skedinger, Per, 2014. "Effects of Payroll Tax Cuts for Young Workers," Working Paper Series 1031, Research Institute of Industrial Economics.

    More about this item

    Keywords

    J31; J38; H24; Earned income tax credit; Unemployment benefits; Wage formation;

    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

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