Taxation on Labour Incomes : The Effect of Changes in Marginal Taxation on Labour Supply in Sweden

Abstract: In this study I investigate how changes in marginal taxation on labour income affect labour supply in Sweden in the time period 1991-2006. Unlike previous research which has used data on the individual level, this study uses aggregated data on the municipality level and another methodological approach. The results indicate that labour supply is reduced as marginal taxation is increased, but the reduction is modest and varies between those in the public and the private sector. The reduction in labour supply is in line with conclusions from previous research, but in contrast to previous studies it is found that labour income increases as marginal taxation increases.