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

  • Aaberge, Rolf

    ()

    (Research Department, Statistics Norway)

  • Flood, Lennart

    ()

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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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File URL: http://hdl.handle.net/2077/18215
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 319.

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Length: 42 pages
Date of creation: 30 Sep 2008
Date of revision:
Handle: RePEc:hhs:gunwpe:0319
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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