Tax Policy Effects on Labour Supply by Peter Ericson

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Tax Policy Effects on Labour Supplyby Peter
Ericson Johan Fall

• Employment key policy issue for most
  governments
• Labour market functioning many aspects not
  further discussed in our paper
• Microsimulation our main focus
• Comprehensive data and soft ware provided by
  Statistics Sweden
• Static vs dynamic simulation

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The model

• Discrete choice hours of work
• Utility functions for 4 different types of
  households
• Assumptions/limitationsindividuals excluded
  (e.g. unemployed)
• Model population

According to the model no adjustment is
assumed/allowed.
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3 different kinds of income tax reforms
1. General tax cut
2. Partial tax cut
3. Shift in tax threshold
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Policy evaluation

• Hours of work
• Fiscal balance
• Degree of self-financing
• Welfare (EV)
• Equality (GINI)
• Social welfare function (SWF)

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Results equivalent reforms improving employment
by 50 000

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Concluding remarks

• Methodology
• Results dependent on model (as always)
• Room for improvement
• Policy
• Policy analysis benefits from multiple
  evaluation-methods
• SWF-analysis has mixed results
• Dynamic analysis is important
• Evaluation result
• Lower employment cost for keeping a tight
  income distribution