SWEtaxben: A Swedish Tax/Benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform

48 Pages Posted: 21 Apr 2009

See all articles by Peter Ericson

Peter Ericson

Goeteborg University - School of Business, Economics and Law; Ministry of Finance

Lennart Flood

Goeteborg University - School of Business, Economics and Law; IZA Institute of Labor Economics

Roger Wahlberg

University of Gothenburg - School of Economics & Commercial Law

Abstract

The purpose of SWEtaxben is to evaluate the impact of changes in the tax/benefit systems on households as well as the central governmental budget. Relating to the micro simulation literature this model can be labeled a static micro simulation model with behavioral changes. This behavioral change takes two different forms and use two different types of models; first binary models that describe mobility in/out from non-work states such as old age pension, disability, unemployment, long term sickness and second models that describe change in working hours and welfare participation. Thus, apart from the choice to work or not to work, working hours conditional on working as well as welfare participation are treated as endogenous variables. As an application the model is used to evaluate the recent Swedish make work pay reform, effective from 2007 and further reinforced in 2008 and 2009. The key characteristic of this reform is an in-work tax credit and decreased state tax rate. Simulations performed by SWEtaxben show increased working hours at both the intensive as well as extensive margin. The tax decrease together with dynamic changes results in a strong increase in household's incomes but also a reduction in income inequality. However, even considering the increase in hours of work, the reform is far from being self-financed.

Keywords: micro simulation, tax-benefit system, in-work tax credit reform

JEL Classification: C8, D31, H24

Suggested Citation

Ericson, Peter and Flood, Lennart and Wahlberg, Roger, SWEtaxben: A Swedish Tax/Benefit Micro Simulation Model and an Evaluation of a Swedish Tax Reform. IZA Discussion Paper No. 4106, Available at SSRN: https://ssrn.com/abstract=1391758

Peter Ericson (Contact Author)

Goeteborg University - School of Business, Economics and Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden

Ministry of Finance

Drottinggatan 21
Stockholm 10333
Sweden

Lennart Flood

Goeteborg University - School of Business, Economics and Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46 31 773 1331 (Phone)
+46 31 773 1043 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Roger Wahlberg

University of Gothenburg - School of Economics & Commercial Law ( email )

Vasagatan 1, Box 640
Gothenburg, 40530
Sweden

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