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Analyzing tax reforms using the Swedish Labour Income Microsimulation Model

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  • Lundberg, Jacob

    (Department of Economics)

Abstract
Labour income taxation is a central policy topic because labour income makes up the majority of national income and most taxes are in the end taxes on labour. In order to quantify how behavioural responses of labour income earners affect tax revenue, the Swedish Labour Income Microsimulation Model (SLIMM) is constructed and used to evaluate tax reforms. The model simulates taxable income responses, participation responses and income effects. Elasticities are calibrated to match midpoints of estimates found in the quasiexperimental literature. SLIMM is solidly microfounded and uses administrative register data. The model is used to analyze changes to the earned income tax credit (EITC), municipal income taxes and the central government income tax paid by high-income earners. The simulations indicate that the EITC has increased employment by 128,000 and has a degree of self-financing of 21 percent. Almost half of the revenue increase from higher municipal tax rates would disappear due to behavioural responses. Tax cuts for the richest fifth of working Swedes are completely self-financing.

Suggested Citation

  • Lundberg, Jacob, 2017. "Analyzing tax reforms using the Swedish Labour Income Microsimulation Model," Working Paper Series 2017:12, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2017_012
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    Cited by:

    1. Jacob Lundberg, 2017. "The Laffer curve for high incomes," LIS Working papers 711, LIS Cross-National Data Center in Luxembourg.
    2. Lundberg, Jacob & Norell, John, 2018. "Taxes, benefits and labour force participation: A survey of the quasi-experimental literature," Ratio Working Papers 313, The Ratio Institute.

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    More about this item

    Keywords

    income taxation; behavioural responses; dynamic scoring; microsimulation; tax reform;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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