Economic Effects of Taxing Closed Corporations under a Dual Income Tax

Arbeitspapier

Under the Nordic dual income tax system, the taxpayer's total tax bill depends not only on his total income but also on the division of that income between capital income and labor income. This has created new room for tax avoidance, especially for active owners of (closed) corporations. For that reason the Nordic governments have enacted special income-splitting rules and this paper examines the economic effects of these rules. The Swedish scheme of taxing closed corporations is shown to be neutral in its impact on the allocation of resources between closely and widely held corporations, and the cost of capital is invariant to the rate at which capital income is imputed to the owner. The Finnish system rather increases the attractiveness of investing in closed corporations, while the Norwegian scheme may or may not cause the cost of capital to be different from that of widely held corporations. Finally, for Swedish tax rules, we show that the owner's labor supply may decrease as a response to a more lenient tax treatment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2001:16

Classification and Topics

• Classification: Wirtschaft ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; Business Taxes and Subsidies including sales and value-added (VAT) ; Fiscal Policies and Behavior of Economic Agents: Firm
• Subject: Dual income taxation ; Tax avoidance ; Corporate taxation ; Cost of capital ; Einkommensteuer ; Kapitalertragsteuer ; Duale Einkommensteuer ; Steuervermeidung ; Unternehmensbesteuerung ; Kapitalkosten ; Nordeuropa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lindhe, Tobias ; Södersten, Jan ; Öberg, Ann
• Event: Veröffentlichung
• (who): Uppsala University, Department of Economics
• (where): Uppsala
• (when): 2001

Further information

• Handle: http://hdl.handle.net/10419/82857
• Last update: 10.03.2025, 11:41 AM CET