Lifetime versus Annual Tax Progressivity: Sweden, 1968-2009
This paper analyzes the evolution of tax progressivity in Sweden from both annual and lifetime perspectives. Using a rich micro panel with administrative records of incomes, taxes and benefits over the period 1968–2009, we calculate tax rates across the income distribution accounting for different tax bases as well as the role of transfers. The uniquely long time span also allows us to compute tax progressivity as realized over a cohort’s entire life cycle. Our main finding is that taxes are considerably less progressive over the lifetime than in any single year. In fact, life cycle taxes are close to proportional, bearing a redistributive effect of only a few percent. Intragenerational income mobility seems to be driving this result, but the Swedish economic crisis of the 1990s and the tax reforms of 1971 and 1991 are also important events. Labor income taxes contribute less to progressivity in recent years, whereas transfers to unemployed and old-age pensioners have become increasingly important. Our findings are robust to using different tax rates, tax bases, sample populations, discount rates and re-ranking controls.
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- Caspersen, Erik & Metcalf, Gilbert E., 1994.
"Is a Value Added Tax Regressive? Annual Versus Lifetime Incidence Measures,"
National Tax Journal,
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- Blomquist, N S, 1981. "A Comparison of Distributions of Annual and Lifetime Income: Sweden around 1970," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 27(3), pages 243-64, September.
- Björklund, Anders & Palme, Mårten, 1997. "Income Redistribution within the Life Cycle versus between Individuals: Empirical Evidence Using Swedish Panel Data," SSE/EFI Working Paper Series in Economics and Finance 197, Stockholm School of Economics.
- Anthony B. Atkinson & Andrea Brandolini, 2011. "On the identification of the “middle class”," Working Papers 217, ECINEQ, Society for the Study of Economic Inequality.
- Andreas Peichl & Philippe van Kerm, 2007. "PROGRES: Stata module to measure distributive effects of an income tax," Statistical Software Components S456867, Boston College Department of Economics.
- Ivica Urban & Peter J. Lambert, 2005.
"Redistribution, horizontal inequity and reranking: how to measure them properly,"
University of Oregon Economics Department Working Papers
2005-12, University of Oregon Economics Department.
- Ivica Urban & Peter J. Lambert, 2008. "Redistribution, Horizontal Inequity, and Reranking: How to Measure Them Properly," Public Finance Review, , vol. 36(5), pages 563-587, September.
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