Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25920 
Year of Publication: 
2006
Series/Report no.: 
CESifo Working Paper No. 1875
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Dual income tax systems have become increasingly popular; yet, relatively little is known about the consequences of implementing such tax systems. This paper uses a representative panel of taxpayers from the 1993 Finnish tax reform to measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform. The Finnish tax reform appears to be particularly suitable for analysing the effect of separating labour and capital income tax bases. The reform radically reduced the marginal tax rates on capital income to some, but not all, taxpayers, while the taxation of labour income was not reformed at the same time. We find that the reform led to a small positive impact on overall taxable income, but part of the positive response was probably offset by income shifting among the self-employed.
JEL: 
C21
H21
H31
Document Type: 
Working Paper
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