Marginal Tax Rates and Tax-Favoured Pension Savings of the Self-Employed: Evidence from Sweden

In recent years, the study of how individuals respond to policies that aim at promoting pension savings has emerged as a vital area of economic research. This paper adds to this body of literature by estimating the tax price elasticity of contributions to tax-favoured pension-savings accounts on a population of self-employed individuals. I exploit a unique total database over the Swedish population that covers the years 19992005. Using instrumental variables, I obtain a tax price elasticity estimate of -0.51 and an income elasticity estimate of 0.13, whereas ordinary least-squares (OLS) produces estimates that conflict with consumer theory.