Till Örebro universitet

This paper examines how the non-targeted earned income tax credit (EITC) introduced in Sweden in 2007 affected the labor supply of men and women living in a two-adult household and to what extent children in the household affects the outcome. Using a structural discrete labor supply model for two-adult households, we estimate the impact of the EITC on labor supply and disposable income separately for households with and without children. In a first step, the empirical model is evaluated by estimating wage elasticites for men and women separately. Our results correspond in level to those estimated elsewhere in the literature, with somewhat larger estimates for women than for men. Our results also suggest that the labor supply responses for men and women are more similar when no children are in the household. In a second step, the model is used to evaluate the labor supply effects of the EITC. Our results indicate that the largest response is on the extensive margin, with an increase in the labor force for both men and women. The labor supply effect on the intensive margin is smaller, yet positive for men and women working part-time in general, but the presence of children in the household brings difference between men and women. For households without children, the response is about the same in size for men as for women. For households with children, the response for men was about the same as for the case without children, but the response for women was about half in size. This indicates that women are less responsive to economic incentives than men when children are present in the household.