Annotation The paper investigates the relationship between labor taxation and unemployment in Sweden by estimating a labor market model that includes a wage-setting locus and labor demand and supply relationships. the study simulates the effect of a 1 percentage point increase in the payroll tax and in total tax rates. the increase in the payroll tax pushes up labor costs by about percent over a 510 year time horizon. Hours worked fall by 0.5 percent and the unemployment rate rises by 0.3 percentage point. the increase in total tax rates generates a similar result. Therefore, it appears that increases in taxes have adversely affected employment and unemployment in Sweden.