Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2012:14: The E ffect of Age-Targeted Tax Credits on Retirement Behavior

Lisa Laun ()
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Lisa Laun: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: This paper analyzes the eff ect of two age-targeted policy initiatives to delay retirement that were simultaneously implemented in Sweden in 2007: an earned income tax credit and a payroll tax credit. Both policies were targeted at workers aged 65 or above at the beginning of the tax year. The paper exploits that the special rules for elderly were governed by the year of birth while the social security system is governed by age at retirement, i.e., the day of birth, in analyzing the eff ect of the new policies. The results suggest that the age-targeted tax credits increased employment in the year following the 65th birthday by 1.5 percentage points among individuals with annual earnings above the 2007 tax liability threshold three to five years earlier. An analysis of fiscal implications indicates, however, that the increase in employment was not large enough to off set the implied decrease in tax revenues.

Keywords: Labor supply; Retirement; Earned income tax credit; Payroll taxes

JEL-codes: H24; J14; J18; J21

47 pages, October 29, 2012

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