Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden

Helge Bennmarker, Lars Calmfors () and Anna Seim
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Lars Calmfors: Institute for International Economics Study, Stockholm University, Postal: SE-106 91 Stockholm , Sweden

No 2013:12, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: Although there is a large literature on employment effects of earned income tax credits (EITCs) and unemployment benefits, less is known about wage effects. In our model the impact is via the net (after-tax) replacement rate. Using a panel of individuals from Sweden, we find a positive relationship between the net replacement rate and wages with semi-elasticities in the range 0.2-0.4. This implies that a one percent reduction in the unemployment benefit level or a one percent increase in the net-of-tax rate is associated with a fall in the before-tax wage of 0.1-0.2 per cent. EITCs and unemployment benefit reductions are thus likely to induce wage moderation.

Keywords: Earned income tax credit; unemployment benefits; wage formation (search for similar items in EconPapers)
JEL-codes: H24 J31 J38 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2013-05-10
New Economics Papers: this item is included in nep-acc, nep-eur, nep-lab, nep-lma, nep-ltv, nep-pbe and nep-pub
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Citations: View citations in EconPapers (4)

Published as Bennmarker, Helge, Lars Calmfors and Anna Larsson Seim, 'Earned income tax credits, unemployment benefits and wages: empirical evidence from Sweden' in IZA Journal of Labor Policy, 2014, pages 1-20.

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