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The effect of age-targeted tax credits on retirement behavior

Author

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  • Laun, Lisa

    () (IFAU - Institute for Evaluation of Labour Market and Education Policy)

Abstract

This paper analyzes the effect of two age-targeted policy initiatives to delay retirement that were simultaneously implemented in Sweden in 2007: an earned income tax credit and a payroll tax credit. Both policies were targeted at workers aged 65 or above at the beginning of the tax year. The paper exploits that the special rules for elderly were governed by the year of birth while the social security system is governed by age retirement,i.e., the day of birth, in analyzing the effect of the new policies. The results suggest that the age-targeted tax credits increased employment in the year following the 65th birthday by 1.5 percentage points among individuals with annual earnings above the 2007 tax liability threshold three to five years earlier. An analysis of fiscal implications indicates, however, that the increase in employment was not large enough to offset the implied decrease in tax revenues.

Suggested Citation

  • Laun, Lisa, 2012. "The effect of age-targeted tax credits on retirement behavior," Working Paper Series 2012:18, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  • Handle: RePEc:hhs:ifauwp:2012_018
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    References listed on IDEAS

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    1. Raj Chetty & Emmanuel Saez, 2013. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 1-31, January.
    2. Jukka Pirttilä & Hakan Selin, 2011. "Tax Policy and Employment: How Does the Swedish System Fare?," CESifo Working Paper Series 3355, CESifo Group Munich.
    3. Edmark, Karin & Liang, Che-Yuan & Mörk, Eva & Selin, Håkan, 2012. "An Evaluation of the Swedish Earned Income Tax Credit," Working Paper Series 901, Research Institute of Industrial Economics.
    4. Holmlund, Helena, 2007. "A Researcher's Guide to the Swedish Compulsory School Reform," Working Paper Series 9/2007, Stockholm University, Swedish Institute for Social Research.
    5. 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.
    6. Peter Ericson & Lennart Flood, 2012. "A Microsimulation Approach to an Optimal Swedish Income Tax," International Journal of Microsimulation, International Microsimulation Association, vol. 2(5), pages 2-21.
    7. Bennmarker, Helge & Mellander, Erik & Öckert, Björn, 2009. "Do regional payroll tax reductions boost employment?," Labour Economics, Elsevier, vol. 16(5), pages 480-489, October.
    8. Mårten Palme & Ingemar Svensson, 2007. "Financial Implications of Income Security Reforms in Sweden," NBER Chapters,in: Social Security Programs and Retirement around the World: Fiscal Implications of Reform, pages 413-458 National Bureau of Economic Research, Inc.
    9. Lehmann, Etienne & Marical, François & Rioux, Laurence, 2011. "Labor Earnings Respond Differently to Income-Tax and to Payroll-Tax Reforms," IZA Discussion Papers 6108, Institute for the Study of Labor (IZA).
    10. Zweimuller, Josef & Winter-Ebmer, Rudolf & Falkinger, Josef, 1996. "Retirement of spouses and social security reform," European Economic Review, Elsevier, vol. 40(2), pages 449-472, February.
    11. Tammy Schirle, 2008. "Why Have the Labor Force Participation Rates of Older Men Increased since the Mid-1990s?," Journal of Labor Economics, University of Chicago Press, vol. 26(4), pages 549-594, October.
    12. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1, July.
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    Cited by:

    1. repec:spr:jlabrs:v:50:y:2017:i:1:d:10.1007_s12651-017-0223-7 is not listed on IDEAS
    2. Lisa Laun & Mårten Palme, 2018. "The Recent Rise of Labor Force Participation of Older Workers in Sweden," NBER Chapters,in: Social Security Programs and Retirement around the World: Working Longer National Bureau of Economic Research, Inc.
    3. Flood Lennart & Islam Nizamul, 2016. "The rise of working pensioners: the Swedish case," Nordic Tax Journal, Sciendo, vol. 2016(1), pages 41-66, May.
    4. Per Johansson & Lisa Laun & Mårten Palme, 2016. "Health, Work Capacity, and Retirement in Sweden," NBER Chapters,in: Social Security Programs and Retirement Around the World: The Capacity to Work at Older Ages, pages 301-327 National Bureau of Economic Research, Inc.
    5. Stéphanie Jamet & Thomas Chalaux & Vincent Koen, 2013. "Labour Market and Social Policies to Foster More Inclusive Growth in Sweden," OECD Economics Department Working Papers 1023, OECD Publishing.
    6. repec:spr:jopoec:v:31:y:2018:i:1:d:10.1007_s00148-017-0664-x is not listed on IDEAS
    7. Hagen, Johannes, 2016. "What are the Health effects of postponing retirement? An instrumental variable approach," Working Paper Series 2016:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    8. Maciej Lis & Agnieszka Kamińska & Aart-Jan Riekhoff & Izabela Styczynska, 2013. "The Impact of Institutional and Socio-Ecological Drivers on Activity at Older Ages," CASE Network Reports 0115, CASE-Center for Social and Economic Research.
    9. repec:wfo:wstudy:58532 is not listed on IDEAS

    More about this item

    Keywords

    Labor supply; retirement; earned income tax credit; payroll taxes;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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