Employment effects of the ROT tax deduction
This report is the last study in Swedish Agency for Growth Policy Analysis’ (Growth Analysis) project Do industry-specific tax subsidies promote growth? Previous studies include a descriptive analysis of firms using the ROT and RUT tax deduction and an effect/impact evaluation of the RUT tax deduction during 2010–2015. In this study, we evaluate the employment effects of the ROT tax deduction during the same period.
The results show an increase in the number of employees in ROT specialized firms. Most of the employees work in the three urban municipalities, while the largest effects of the reform are found in remote municipalities.
Evaluating the effects with the Raps-model
In this study/evaluation we use the Raps model tool, a regional analysis and prognosis system, to study the employment effects. Raps is an input/output model specifically designed to predict regional development. It contains statistics on demography, labor market, and regional economy. Due to a further development of the Raps model, we have carried out counterfactual analyzes This means that we compare the actual development of employment in ROT specialized firms with a hypothetical scenario where the ROT tax deduction is never introduced.
Economic and labour market effects
The study is focused on ROT specialized firms. As defined by the Swedish Tax Agency, ROT specialized firms includes firms where the total amount of performed ROT services are at least 10 percent of the salary payments for a given year. In 2010 these firms employed approximately 177,000 persons. In 2015 this number had increased to 214,000 employees. These figures correspond to an employment increase of almost 21 percent. This can be compared with the total employment in Sweden, which increased by almost 8 percent during the same period.
According to our calculations, the number of employees in ROT specialized firms would have been between 11,000 and 16,000 less if the ROT tax deduction never was introduced. These calculations do not consider an alternative use of the means spent on the ROT tax subsidy.
The Raps model also estimate the indirect effects associated to the ROT specialized firms. Based on these calculations, we estimate the indirect effect to be between 1,14 and 1,31 jobs. This means that for each job created in a ROT specialized firm, between 0,14 and 0,31 job is created elsewhere in the economy. These indirect effects are mainly concentrated in the public service sector, business services and trade.
The total cost of the reform amounts to approximately SEK 92,5 billion between 2010-2015. If this is compared to our calculations, the gross cost of a job at a ROT specialized firm is between SEK 5,8 and 8,4 million. In comparison, the total cost for the tax deduction on household services (RUT) is estimated at between SEK 1,6 and 1,9 million.
Largest effects in remote regions
Most employees in the ROT specialized firms are situated in urban cities and adjacent municipalities. In 2015, almost half of the employees at ROT specialized firms are located in the three largest counties in Sweden. As a share of total employment, the ROT tax deduction show the largest effects in remote and very remote rural municipalities. In these areas, the effect are almost 0,6 percent of total employment. In urban cities the corresponding number is just below 0,4 percent.