The Effects of Tax Wedges on Hours Worked and Unemployment in Sweden
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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. 1998/152
Subject:
Labor Labor markets Labor taxes Payroll tax Real wages Taxes Wages
English
Publication Date:
October 1, 1998
ISBN/ISSN:
9781451922745/1018-5941
Stock No:
WPIEA1521998
Pages:
25
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