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Distributional and employment effects of labour tax changes: Finnish evidence over the period 1996-2008

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  • Markku Lehmus

Abstract

Labour income taxes have decreased considerably in Finland in the period 1996-2008. At the same time the Finnish economy has grown rapidly. Nevertheless, there has been another coincident trend in this period: A rapid rise in inequality. This study aims to answer to what extent labour income tax reductions between 1996 and 2008 have contributed to this trend in inequality. The study also examines how much more employment has been attained due to the labour tax reforms.Dynamic general equilibrium model with heterogeneous agentsThe study finds that the labour income tax cuts have fractionally raised the Gini coefficient for net labour income. They have also increased the concentration of wealth. The employment gains due to the reforms have been modest but nevertheless significant.

Suggested Citation

  • Markku Lehmus, 2012. "Distributional and employment effects of labour tax changes: Finnish evidence over the period 1996-2008," EcoMod2012 4211, EcoMod.
    • Handle: RePEc:ekd:002672:4211
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