Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82857
Authors: 
Lindhe, Tobias
Södersten, Jan
Öberg, Ann
Year of Publication: 
2001
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2001:16
Abstract: 
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.
Subjects: 
Dual income taxation
Tax avoidance
Corporate taxation
Cost of capital
JEL: 
H24
H25
H32
Document Type: 
Working Paper

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