Marginal taxation on labour income in Sweden from 1862 to 2010

Abstract

This paper presents annual Swedish time series data on the top marginal tax wedge and marginal tax wedges on labour income for a low-, average- and high-income earner for the period 1862–2010. These data are unique in their consistency, thoroughness and timespan covered. We identify four distinct periods separated by major tax reforms. The tax system can be depicted as proportional, with low tax wedges until the Second World War. Next follows a period featuring increasing tax wedges. During the third period, starting with the 1971 tax reform and continuing throughout the 1980s, the efforts to redistribute income culminated and tax wedges peaked. The high-income earner started to pay the top marginal tax wedge which could be as high as almost 90%. The main explanations for this development are temporary crises leading to permanent tax increases, expansion of the public sector, distributional ambitions, increased local taxes, bracket-creep and the introduction of social security contributions paid by employers. The 1990–1991 tax reform represents the beginning of a new and still continuing period with decreasing marginal tax wedges.