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Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009

Author

Listed:
  • Bengtsson, Niklas

    () (Department of Economics)

  • Holmlund, Bertil

    () (Department of Economics)

  • Waldenström, Daniel

    () (Uppsala Center for Fiscal Studies)

Abstract

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, although the Swedish economic crisis of the 1990s and the tax reforms of 1971 and 1991 are also important. Labor income taxes contribute less to progressivity in recent years,whereas transfers to unemployed and old-age pensioners have become increasingly important. These findings are robust to the use of different tax rates, tax bases, sample populations, rates of discounting and controls for reranking.

Suggested Citation

  • Bengtsson, Niklas & Holmlund, Bertil & Waldenström, Daniel, 2012. "Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009," Working Paper Series, Center for Fiscal Studies 2012:8, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uufswp:2012_008
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    References listed on IDEAS

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    1. George W. Evans & Seppo Honkapohja, 2006. "Monetary Policy, Expectations and Commitment," Scandinavian Journal of Economics, Wiley Blackwell, pages 15-38.
    2. Anthony B. Atkinson & Andrea Brandolini, 2011. "On the identification of the “middle class”," Working Papers 217, ECINEQ, Society for the Study of Economic Inequality.
    3. Caspersen, Erik & Metcalf, Gilbert E., 1994. "Is a Value Added Tax Regressive? Annual Versus Lifetime Incidence Measures," National Tax Journal, National Tax Association, vol. 47(4), pages 731-746, December.
    4. 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.
    5. 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.
    6. 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.
    7. 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 243-264, September.
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    Cited by:

    1. Alexis Eidelman & Fabrice Langumier & Augustin Vicard, 2013. "Prélèvements et transferts aux ménages : des canaux redistributifs différents en 1990 et 2010," Économie et Statistique, Programme National Persée, vol. 459(1), pages 5-26.
    2. Mike Brewer & Monica Costa Dias & Jonathan Shaw, 2012. "Lifetime inequality and redistribution," IFS Working Papers W12/23, Institute for Fiscal Studies.
    3. Peter H. Lindert, 2017. "The Rise and Future of Progressive Redistribution," Commitment to Equity (CEQ) Working Paper Series 73, Tulane University, Department of Economics.
    4. Boschini, Anne & Gunnarsson, Kristin & Roine, Jesper, 2017. "Women in Top Incomes: Evidence from Sweden 1974–2013," IZA Discussion Papers 10979, Institute for the Study of Labor (IZA).
    5. Gerlinde Verbist & Francesco Figari, 2014. "The Redistributive Effect and Progressivity of Taxes Revisited: An International Comparison across the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 70(3), pages 405-429, September.
    6. Sara Torregrosa Hetland, 2015. "Did democracy bring redistribution? Insights from the Spanish tax system, 1960–90," European Review of Economic History, Oxford University Press, vol. 19(3), pages 294-315.
    7. Elin Halvorsen & Thor Olav Thoresen, 2017. "Distributional Effects of the Wealth Tax under a Lifetime-Dynastic Income Concept," CESifo Working Paper Series 6614, CESifo Group Munich.
    8. Dahlberg, Matz & Edmark, Karin & Lundqvist, Heléne, 2013. "Ethnic Diversity and Preferences for Redistribution: Reply," Research Papers in Economics 2013:5, Stockholm University, Department of Economics.

    More about this item

    Keywords

    Tax progressivity; Income distribution; Lifetime income; Redistributive effect; Kakwani index; Transfers.;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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