Flood, Lennart, Jörgen Hansen, and Roger Wahlberg. 2004. "Household Labor Supply and Welfare Participation in Sweden." Journal of Human Resources 39(4): 1008-1032.

We formulate and estimate a structural, static model of household labor supply and multiple welfare program participation. Given the complicated nature of both the income tax schedule and the benefit rules for different welfare programs, we use a detailed micro simulation model to generate accurate budget sets for each work-welfare combination. We also use high-quality data on earnings and other types of incomes obtained both from employers and from income tax records. The results suggest that labor supply among two-parent families in Sweden is quite inelastic. A policy simulation designed to increase labor supply incentives for low income families generated substantial positive welfare effects, despite only minor changes in labor supply and in welfare participation.

Lennart Flood is a professor of economics at Göteborg University and affiliated with IZA. Jörgen Hansen is an assistant professor of economics at Concordia University, Canada, and affiliated with CEPR, CIRANO, CIREQ, and IZA. Roger Wahlberg is an assistant professor of economics at Göteborg University, Sweden. The authors would like to thank two anonymous referees, Rob Euwals, Magnus Lofstrom, Thomas MaCurdy, and Arthur van Soest, as well as seminar participants at Concordia University, Göteborg University, IUPU Indianapolis, IZA, and Uppsala University for helpful comments and suggestions. Financial support from the Swedish Counsel for Social Research and from the Jan Wallander and Tom Hedelius Foundation for Research in Economics is gratefully acknowledged. Data for this paper are available from Statistics Sweden. Contact the authors for information about how to apply for access to the data. Lennart Flood, Box 640, SE 405 30 Göteborg, Sweden. Email: <Lennart.Flood@economics.gu.se>.