The Effects of Tax Wedges on Hours Worked and Unemployment in Sweden

Author/Editor:

Alun H. Thomas

Publication Date:

October 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 98/152

Subject:

English

Publication Date:

October 1, 1998

ISBN/ISSN:

9781451922745/1018-5941

Stock No:

WPIEA1521998

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

25

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