Studies on social insurance, income taxation and labor supply

Author: Lisa Laun, And

Summary of Dissertation series 2012:1

Increased longevity and lower birth rates have changed the demographic composition in many developed countries. The age-dependency ratio in Sweden, i.e., the fraction of the population aged 65 or older to the population aged 15 to 64, is projected to increase from 28 to 40 percent from 2010 to 2040. An aging population puts pressure on public finances. The retirement age has not adjusted to increased life expectancy and the number of years in retirement has risen. At the same time, the expectations on welfare services have increased. A challenge for modern welfare states in order to sustain the current level of welfare services in presence of the demographic changes is to enhance labor supply at all possible margins.

Two important instruments for policy makers to affect labor supply in old ages are financial incentives and the design of the social insurance system. The first three papers in this thesis regard the performance of social insurance programs, in particular the sickness and the disability insurance program, through which the early withdrawal from the labor force in Sweden primarily takes place. The fourth paper studies the impact of financial incentives for delayed retirement implemented in the income tax system, in the form of age-targeted tax credits. The last paper concerns a slightly different aspect of the social insurance system, namely how income risk is shared between the individual, the firm and the social insurance system. The paper proposes a strategy for studying the amount and characteristics of income risk, in particular the part that can be attributed to the employer.