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Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009

  • Bengtsson, Niklas

    ()

    (Department of Economics)

  • Holmlund, Bertil

    ()

    (Department of Economics)

  • Waldenström, Daniel

    ()

    (Department of Economics)

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

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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2012:11.

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Length: 56 pages
Date of creation: 13 Jun 2012
Date of revision:
Handle: RePEc:hhs:uunewp:2012_011
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. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Erik Caspersen & Gilbert Metcalf, 1993. "Is A Value Added Tax Progressive? Annual Versus Lifetime Incidence Measures," NBER Working Papers 4387, National Bureau of Economic Research, Inc.
  6. Anthony B. Atkinson & Andrea Brandolini, 2011. "On the identification of the “middle class”," Working Papers 217, ECINEQ, Society for the Study of Economic Inequality.
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