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SWEtaxben: A Swedish Tax/benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform

  • Ericson, Peter

    (Sim Solution)

  • Flood, Lennart

    ()

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

  • Wahlberg, Roger

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

The purpose of SWEtaxben is to evaluate the impact of changes in the tax/benefit systems on households as well as the central governmental budget. Relating to the micro simulation literature this model can be labeled a static micro simulation model with behavioral changes. This behavioral change takes two different forms and use two different types of models; first binary models that describe mobility in/out from non-work states such as old age pension, disability, unemployment, long term sickness and second models that describe change in working hours and welfare participation. Thus, apart from the choice to work or not to work, working hours conditional on working as well as welfare participation are treated as endogenous variables. As an application the model is used to evaluate the recent Swedish “make work pay” reform, effective from 2007 and further reinforced in 2008 and 2009. The key characteristic of this reform is an in-work tax credit and decreased state tax rate. Simulations performed by SWEtaxben show increased working hours at both the intensive as well as extensive margin. The tax decrease together with dynamic changes results in a strong increase in household’s incomes but also a reduction in income inequality. However, even considering the increase in hours of work, the reform is far from being self-financed.

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File URL: http://hdl.handle.net/2077/19473
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 346.

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Length: 50 pages
Date of creation: 24 Feb 2009
Date of revision:
Handle: RePEc:hhs:gunwpe:0346
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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  1. Lennart Flood & Roger Wahlberg & Elina Pylkkänen, 2007. "From Welfare to Work: Evaluating a Tax and Benefit Reform Targeted at Single Mothers in Sweden," LABOUR, CEIS, vol. 21(3), pages 443-471, 09.
  2. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
  3. Aaberge, Rolf & Flood, Lennart, 2008. "Evaluation of an In-work Tax Credit Reform in Sweden: Effects on Labor Supply and Welfare Participation of Single Mothers," Working Papers in Economics 319, University of Gothenburg, Department of Economics.
  4. Rolf Aaberge & Ugo Colombino, 2008. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," ICER Working Papers 19-2008, ICER - International Centre for Economic Research.
  5. Flood, Lennart & Pylkkänen, Elina & Wahlberg, Roger, 2003. "From Welfare to Work: Evaluating a Proposed Tax and Benefit Reform Targeted at Single Mothers in Sweden," Working Papers in Economics 107, University of Gothenburg, Department of Economics.
  6. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-22, July-Aug..
  7. Jeffrey M Wooldridge, 2002. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," CeMMAP working papers CWP18/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  8. Aaberge, Rolf & Dagsvik, John K & Strom, Steinar, 1995. " Labor Supply Responses and Welfare Effects of Tax Reforms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 635-59, December.
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