Labour supply incentives, income support systems and taxes in Sweden

Comparing Sweden to other EU countries, labour force participation rates of older individuals and females are high. These facts are consistent with the idea that insti­tutional design matters: access to child care, paid parental leave, and a tax system with individual rather than household income taxation, probably explain a significant fraction of the high female participation rate; and the evidence suggests that the design of pension systems has an impact on the labour force participation of the elderly. Active labour market policies may contribute to high labour force participation, but cannot be relied on as a major means of raising employment and participation in the long run.

Keywords: Labour supply, taxes, income support systems
JEL-codes: H55, J21, J26