Scandinavian Working Papers in Economics
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Department of Economics, Uppsala University Working Paper Series, Uppsala Center for Labor Studies, Department of Economics, Uppsala University

No 2012:13:
Lifetime versus Annual Tax Progressivity: Sweden, 1968–2009

Niklas Bengtsson (), Bertil Holmlund () and Daniel Waldenström ()

Abstract: This paper analyzes the evolution of tax progressivity in Sweden from both annual and lifetime perspectives.Using a rich micro panel with administrative records of incomes, taxes and benefits over theperiod 1968–2009, we calculate tax rates across the income distribution accounting for different taxbases as well as the role of transfers. The uniquely long time span also allows us to compute tax progressivity as realized over a cohort’s entire life cycle. Our main finding is that taxes are considerably less progressive over the lifetime than in any single year. In fact, life cycle taxes are close to proportional,bearing a redistributive effect of only a few percent. Intragenerational income mobility seems to be driving this result, although the Swedish economic crisis of the 1990s and the tax reforms of 1971and 1991 are also important. Labor income taxes contribute less to progressivity in recent years,whereas transfers to unemployed and old-age pensioners have become increasingly important. These findings are robust to the use of different tax rates, tax bases, sample populations, rates of discounting and controls for reranking.

Keywords: Tax progressivity; Income distribution; Lifetime income; Redistributive effect; Kakwani index; Transfers; (follow links to similar papers)

JEL-Codes: D31; H20; (follow links to similar papers)

58 pages, June 13, 2012

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