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Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009

  • Bengtsson, Niklas

    ()

    (Uppsala University)

  • Holmlund, Bertil

    ()

    (Uppsala University)

  • Waldenström, Daniel

    ()

    (Uppsala University)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6641.

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Length: 59 pages
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6641
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  1. 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.
  2. 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.
  3. 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.
  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. 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.
  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.
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