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The Effects of Tax Wedgeson Hours Worked and Unemployment in Sweden

  • Alun H. Thomas
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    The paper investigates the relationship between labor taxation and unemployment in Sweden by estimating a labor market model that includes a wage-setting locus and labor demand and supply relationships. The study simulates the effect of a 1 percentage point increase in the payroll tax and in total tax rates. The increase in the payroll tax pushes up labor costs by about ½ percent over a 5–10 year time horizon. Hours worked fall by 0.5 percent and the unemployment rate rises by 0.3 percentage point. The increase in total tax rates generates a similar result. Therefore, it appears that increases in taxes have adversely affected employment and unemployment in Sweden.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/152.

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    Length: 25
    Date of creation: 01 Oct 1998
    Date of revision:
    Handle: RePEc:imf:imfwpa:98/152
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