Tax reform evaluation using non-parametric methods: Sweden 1980-1991

This paper evaluates the tax reform carried out in Sweden between 1980 and 1991. We use a recently developed non-parametric estimation technique to ac count for the labor supply responses of married prime aged males. We decomp ose the tax reform to study how the separate components influence hours of work, tax revenue, and income distribution. We find that the decrease in ma rginal tax rates stimulated labor supply but that the other parts of the re form counteracted this effect. The net increase in average desired hours of work was approximately 2%, We also find that the reform was under financed and that inequality increased. The non-parametric predictions are compared to the results based on a flexible parametric model. The qualitative resul ts are similar, but the quantitative results are quite different. (C) 2001 Elsevier Science B.V. All rights reserved.