Abstract
This chapter discusses possible ways to finance the increased demand for resources from the elderly through the tax system. Maintaining the benefits at today’s level will require either increased tax burden on those working or an expanded tax base. As a country with one on the world’s highest tax burdens, Sweden has little or no room to raise additional tax revenues through increased tax rates without causing substantial welfare costs. There is, however, some room to raise additional tax revenues by increasing the number of hours worked in the economy. This will likely not be enough however and alternative ways need to be sought and found in order to finance the increased demand from the elderly.
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Notes
- 1.
In fact, researchers have not been able to find a robust negative relationship between integration and effective corporate tax rates based on measures of corporate tax revenues. Slemrod (2004) and Dreher (2006), for example, found a positive relationship between integration and effective corporate tax rates while a negative relationship between integration and statutory tax rates suggested that the effect of lower statutory rates was offset by increases in the tax base.
- 2.
This result hinges on the substitution effect dominating the income effect, which empirical studies generally tend to find support for.
- 3.
Estimates of the excess burden in Sweden typically rank between 0.5 and 3 SEK (Hansson 2007b). Generally, estimates that are more recent have fallen in the upper end. If the excess burden is 2 SEK, then it costs 3 SEK to raise an additional SEK in tax revenues.
- 4.
In addition to the social security insurance provided through the government, most employees (90%) are covered by additional insurances through their employer. For instance, employers typically put aside 3.5% of the employees’ income for her/him to invest in future pensions. Insurance for other purposes are also provided by the employer.
- 5.
Apart from the general VAT, certain goods and services are subject to excise and custom duties. Approximately a third of the revenues from taxation of goods and services stem from excise and custom duties. The largest contributor is revenues from energy and environmental duties (2/3), while excise taxes on alcohol and tobacco constitute roughly 1/5 of the total revenues from excise and custom duties.
- 6.
In 2002, 80.9% of the Swedish-born population between 20 and 64 were employed. The corresponding figure for the foreign-born population was 62.7% (SOU 2004, p. 19).
- 7.
Wildasin (1999), for instance, showed that an individual can gain an additional 15% or more of her/his lifetime wealth by moving from one public pension program to another, given that the benefits are not contributions-based.
- 8.
The moral hazard problem is not resolved by social insurance but private insurance may fail to materialise altogether with extensive moral hazard.
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I would like to thank all the authors of this volume for insightful and valuable comments and discussions from which this chapter has greatly benefited.
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Hansson, Å. (2010). In This World Nothing Is Certain but Death and Taxes: Financing the Elderly. In: Bengtsson, T. (eds) Population Ageing - A Threat to the Welfare State?. Demographic Research Monographs. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-12612-3_3
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