Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 1: The Structure of the Tax-system and the Estimation of Labor Supply Models

Lennart Flood
Additional contact information
Lennart Flood: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Department of Economics., School of Economics and Commercial Law, Göteborg University, Box 640, SE 40530 GÖTEBORG

Abstract: Using a repeated cross section for married prime age Swedish males for the years 1984, 1986 and 1988 produce drastically different labor supply elasticities. From 1984 to 1988 the Swedish tax system has reduced both tax levels and degree of progressivity, the numbers of kink-points have dropped from 18 to only 3. The numbers of individuals close to or at a kink point have a large influence on the estimated parameters, more individuals close to a kink imply larger estimated incentive effects. More kinks in the tax system imply a higher probability of finding individuals close to a kink.

Keywords: Labor supply and taxes; piece-wise linear taxes; kink points; differentiable approximation; Jacobean; measurement error; compensated elasticities.

JEL-codes: J22

28 pages, April 15, 1998

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