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Distributional and employment effects of labour tax changes in Finland

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  • Lehmus, Markku
Abstract
Labour income taxes in Finland decreased considerably during the period 1996–2008. At the same time the Finnish economy grew rapidly. Nevertheless, there was another coincidental trend in this period: a rapid rise in inequality. This study aims to answer to what extent labour income tax reductions between 1996 and 2008 contributed to this trend in inequality. The study also examines how much more employment was achieved owing to the labour tax reforms. To answer these questions, I build a dynamic general equilibrium model with heterogeneous agents. The model is calibrated to fit the Finnish economy. The study finds that the labour income tax cuts fractionally raised the Gini coefficient for net labour income. They also increased the concentration of wealth. The employment gains due to the reforms have been modest, but nevertheless significant.

Suggested Citation

  • Lehmus, Markku, 2014. "Distributional and employment effects of labour tax changes in Finland," Journal of Policy Modeling, Elsevier, vol. 36(1), pages 107-120.
    • Handle: RePEc:eee:jpolmo:v:36:y:2014:i:1:p:107-120
    DOI: 10.1016/j.jpolmod.2013.10.015
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    References listed on IDEAS

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    11. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April.
    12. Lehmus, Markku, 2011. "Labor or consumption taxes? An application with a dynamic general equilibrium model with heterogeneous agents," Economic Modelling, Elsevier, vol. 28(4), pages 1984-1992, July.
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    Cited by:

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    2. Saeed Solaymani, 2020. "Assessing the economic and social impacts of fiscal policies," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(3), pages 671-694, March.
    3. Philander, Kahlil S. & Bernhard, Bo J. & Wimmer, Bradley S. & Singh, Ashok K. & Eadington, William R., 2015. "U.S. casino revenue taxes and short-run labor outcomes," Journal of Policy Modeling, Elsevier, vol. 37(1), pages 35-46.
    4. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2022. "Tax enforcement and corporate employment: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 73(C).
    5. Antón, Arturo & Boyd, Roy & Elizondo, Alejandra & Ibarrarán, María Eugenia, 2016. "Universal social insurance for Mexico: Modeling of a financing scheme," Economic Modelling, Elsevier, vol. 52(PB), pages 838-850.
    6. Coda Moscarola, Flavia & Colombino, Ugo & Figari, Francesco & Locatelli, Marilena, 2020. "Shifting taxes away from labour enhances equity and fiscal efficiency," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 367-384.
    7. Christophe André & Hyunjeong Hwang, 2018. "Tax reform to support growth and employment in Finland," OECD Economics Department Working Papers 1468, OECD Publishing.
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    11. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Labour taxes; Income distribution; Heterogeneous agents; General equilibrium;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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