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

October 1, 1998

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Format: Chicago

Alun H. Thomas The Effects of Tax Wedges on Hours Worked and Unemployment in Sweden, (USA: International Monetary Fund, 1998) accessed September 18, 2024

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.

Subject: Labor, Labor markets, Labor taxes, Payroll tax, Real wages, Taxes, Wages

Keywords: Employee wage, Employment, Labor cost, Labor markets, Labor taxes, Net wage, Payroll tax, Payroll taxes, Real wage, Real wages, Reservation wage, Salary cost, Total labor taxes, Unemployment, Wage, Wage cost, Wage cut, Wage sector, Wages, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/152
Stock No:

WPIEA1521998
ISBN:

9781451922745
ISSN:

1018-5941

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