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Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009

  • Bengtsson, Niklas

    ()

    (Department of Economics)

  • Holmlund, Bertil

    ()

    (Department of Economics)

  • Waldenström, Daniel

    ()

    (Uppsala Center for Fiscal Studies)

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.

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File URL: http://ucfs.nek.uu.se/digitalAssets/129/129522_wp20128.pdf
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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2012:8.

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Length: 58 pages
Date of creation: 13 Jun 2012
Date of revision:
Handle: RePEc:hhs:uufswp:2012_008
Contact details of provider: Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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  1. 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 731-46, December.
  2. Ivica Urban & Peter J. Lambert, 2005. "Redistribution, horizontal inequity and reranking: how to measure them properly," University of Oregon Economics Department Working Papers 2005-12, University of Oregon Economics Department.
  3. 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 243-64, September.
  4. Anthony B. Atkinson & Andrea Brandolini, 2011. "On the identification of the “middle class”," Working Papers 217, ECINEQ, Society for the Study of Economic Inequality.
  5. 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.
  6. 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.
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