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Earned Income Tax Credit and Wages: A Study of Swedish Panel Data

Ekman, Jesper LU (2018) NEKH02 20181
Department of Economics
Abstract
This thesis examines how the introduction of an Earned Income Tax Credit (EITC) in Sweden in 2007 may have affected pre-tax salaries. Previous research has found that the incidence of an EITC may not be entirely carried by the employees, which in some earlier research is assumed. A reduction in pre-tax salaries implies that a portion of the tax credit benefits the employers. If true, an EITC may increase income inequality. Previous research has also estimated the elasticity of labor supply to be different between men and women which suggests different responses to an EITC. Using collapsed data from Statistics Sweden I examine the effect of the EITC on pre-tax salaries by using a difference in differences approach. My results show that the... (More)
This thesis examines how the introduction of an Earned Income Tax Credit (EITC) in Sweden in 2007 may have affected pre-tax salaries. Previous research has found that the incidence of an EITC may not be entirely carried by the employees, which in some earlier research is assumed. A reduction in pre-tax salaries implies that a portion of the tax credit benefits the employers. If true, an EITC may increase income inequality. Previous research has also estimated the elasticity of labor supply to be different between men and women which suggests different responses to an EITC. Using collapsed data from Statistics Sweden I examine the effect of the EITC on pre-tax salaries by using a difference in differences approach. My results show that the EITC did not have an effect on pre-tax salaries. Neither did it have a dissimilar impact on pre-tax salaries depending on gender. These results suggest that the incidence of the EITC was exclusively carried by the employees and that the EITC did not increase income inequality by inducing changes in pre-tax salaries. (Less)
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author
Ekman, Jesper LU
supervisor
organization
course
NEKH02 20181
year
type
M2 - Bachelor Degree
subject
keywords
EITC, Wage, Labor supply
language
English
id
8947545
date added to LUP
2018-07-05 11:24:25
date last changed
2018-07-05 11:24:25
@misc{8947545,
  abstract     = {This thesis examines how the introduction of an Earned Income Tax Credit (EITC) in Sweden in 2007 may have affected pre-tax salaries. Previous research has found that the incidence of an EITC may not be entirely carried by the employees, which in some earlier research is assumed. A reduction in pre-tax salaries implies that a portion of the tax credit benefits the employers. If true, an EITC may increase income inequality. Previous research has also estimated the elasticity of labor supply to be different between men and women which suggests different responses to an EITC. Using collapsed data from Statistics Sweden I examine the effect of the EITC on pre-tax salaries by using a difference in differences approach. My results show that the EITC did not have an effect on pre-tax salaries. Neither did it have a dissimilar impact on pre-tax salaries depending on gender. These results suggest that the incidence of the EITC was exclusively carried by the employees and that the EITC did not increase income inequality by inducing changes in pre-tax salaries.},
  author       = {Ekman, Jesper},
  keyword      = {EITC,Wage,Labor supply},
  language     = {eng},
  note         = {Student Paper},
  title        = {Earned Income Tax Credit and Wages: A Study of Swedish Panel Data},
  year         = {2018},
}