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The Effect of Labour Taxation on the Employment Level

Kassab, Zeinab LU (2015) NEKN01 20151
Department of Economics
Abstract (Swedish)
Over the past decade an increase in labour taxation reforms have been observed across several countries. The main target of these reforms has generally been to encourage labour supply among different groups. In the case of Sweden, an earned income tax credit was introduced in 2007 and reinforced in 2008, 2009, 2010 and 2011 as a measure to deal with the high unemployment level. The relationship between labour taxation and the employment level might thus suffer from bias due to reverse causality.
This paper examines the relationship between the income taxation rate and the employment level in Sweden, using panel data of Sweden’s municipalities over the time period 1993-2013. To overcome the endogeneity problems, an Instrumental Variable... (More)
Over the past decade an increase in labour taxation reforms have been observed across several countries. The main target of these reforms has generally been to encourage labour supply among different groups. In the case of Sweden, an earned income tax credit was introduced in 2007 and reinforced in 2008, 2009, 2010 and 2011 as a measure to deal with the high unemployment level. The relationship between labour taxation and the employment level might thus suffer from bias due to reverse causality.
This paper examines the relationship between the income taxation rate and the employment level in Sweden, using panel data of Sweden’s municipalities over the time period 1993-2013. To overcome the endogeneity problems, an Instrumental Variable model has been used where the averaged neighbouring municipalities’ tax rates act as an instrument. The results suggest that the income taxation rate has a negative effect on the employment level, where the Instrumental Variable model presents an almost twice as high effect in comparison to the OLS results. (Less)
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author
Kassab, Zeinab LU
supervisor
organization
course
NEKN01 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Labour taxation, employment level, Swedish municipalities, panel data, Instrumental Variable
language
English
id
7853468
date added to LUP
2015-09-04 09:12:29
date last changed
2015-09-04 09:12:29
@misc{7853468,
  abstract     = {Over the past decade an increase in labour taxation reforms have been observed across several countries. The main target of these reforms has generally been to encourage labour supply among different groups. In the case of Sweden, an earned income tax credit was introduced in 2007 and reinforced in 2008, 2009, 2010 and 2011 as a measure to deal with the high unemployment level. The relationship between labour taxation and the employment level might thus suffer from bias due to reverse causality.
This paper examines the relationship between the income taxation rate and the employment level in Sweden, using panel data of Sweden’s municipalities over the time period 1993-2013. To overcome the endogeneity problems, an Instrumental Variable model has been used where the averaged neighbouring municipalities’ tax rates act as an instrument. The results suggest that the income taxation rate has a negative effect on the employment level, where the Instrumental Variable model presents an almost twice as high effect in comparison to the OLS results.},
  author       = {Kassab, Zeinab},
  keyword      = {Labour taxation,employment level,Swedish municipalities,panel data,Instrumental Variable},
  language     = {eng},
  note         = {Student Paper},
  title        = {The Effect of Labour Taxation on the Employment Level},
  year         = {2015},
}