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Tax Policy and Employment: How Does the Swedish System Fare?


  • Pirttälä, Jukka

    () (University of Tampere and the Labour Institute for Economic Research)

  • Selin, Håkan

    (Uppsala Center for Fiscal Studies)


This paper reviews the literature on optimal taxation of labour income and the empirical work on labour supply and the elasticity of taxable income in Sweden. It also presents an overview of Swedish taxation of labour income, offers calculations on the development in effective marginal tax rates and participation tax rates, and estimates, using the difference-in-differences method, the impact of tax incentives on employment rates of elderly workers. After this background, we ponder possibilities for reforming the Swedish tax system to improve its labour market impacts. We suggest better targeting the earned income tax credit at families and low-income workers, lowering the top marginal tax rates, and maintaining the tax incentives for older workers.

Suggested Citation

  • Pirttälä, Jukka & Selin, Håkan, 2011. "Tax Policy and Employment: How Does the Swedish System Fare?," Working Paper Series, Center for Fiscal Studies 2011:2, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uufswp:2011_002

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    References listed on IDEAS

    1. Jukka Pirttilä & Håkan Selin, 2011. "Income Shifting within a Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 120-144, March.
    2. Jukka Pirttilä & Ilpo Suoniemi, 2014. "Public Provision, Commodity Demand, and Hours of Work: An Empirical Analysis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(4), pages 1044-1067, October.
    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," IZA Discussion Papers 3736, Institute for the Study of Labor (IZA).
    4. Jukka Pirttilä & Matti Tuomala, 2007. "Labour income uncertainty, taxation and public good provision," Economic Journal, Royal Economic Society, vol. 117(518), pages 567-582, March.
    5. Ossi Korkeamäki & Roope Uusitalo, 2009. "Employment and wage effects of a payroll-tax cut—evidence from a regional experiment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 753-772, December.
    6. Liang, Che-Yuan, 2012. "Nonparametric structural estimation of labor supply in the presence of censoring," Journal of Public Economics, Elsevier, vol. 96(1), pages 89-103.
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    Cited by:

    1. Ståle Holgersen, 2014. "Urban Responses to The Economic Crisis: Confirmation of Urban Policies as Crisis Management in Malmö," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 38(1), pages 285-301, January.
    2. Laun, Lisa, 2012. "The E ffect of Age-Targeted Tax Credits on Retirement Behavior," Research Papers in Economics 2012:14, Stockholm University, Department of Economics.
    3. Jäntti, Markus & Pirttilä, Jukka & Selin, Håkan, 2015. "Estimating labour supply elasticities based on cross-country micro data: A bridge between micro and macro estimates?," Journal of Public Economics, Elsevier, vol. 127(C), pages 87-99.
    4. Neisser, Carina, 2017. "The elasticity of taxable income: A meta-regression analysis," ZEW Discussion Papers 17-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Bartels, Charlotte & Pestel, Nico, 2015. "The Impact of Short- and Long-Term Participation Tax Rates on Labor Supply," IZA Discussion Papers 9151, Institute for the Study of Labor (IZA).
    6. Bartels, Charlotte, 2012. "Long-term participation tax rates," Discussion Papers 2012/20, Free University Berlin, School of Business & Economics.
    7. repec:eee:pubeco:v:152:y:2017:i:c:p:102-118 is not listed on IDEAS
    8. Bastani, Spencer & Selin, Håkan, 2014. "Bunching and non-bunching at kink points of the Swedish tax schedule," Journal of Public Economics, Elsevier, vol. 109(C), pages 36-49.
    9. Bartels, Charlotte & Pestel, Nico, 2016. "Short- and long-term participation tax rates and their impact on labor supply," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1126-1159.
    10. Jacob Lundberg, 2017. "The Laffer curve for high incomes," LIS Working papers 711, LIS Cross-National Data Center in Luxembourg.
    11. Lundberg, Jacob, 2017. "Analyzing tax reforms using the Swedish Labour Income Microsimulation Model," Working Paper Series 2017:12, Uppsala University, Department of Economics.

    More about this item


    Optimal taxation; labour income taxation; labour supply; taxable income; Swedish tax system.;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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