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Taxing Capital Income in the Nordic Countries: A Model for the European Union?

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  • Sijbren Cnossen

Abstract

High progressive tax rates on capital income induce tax arbitrage between income items and across borders. To reduce such tax arbitrage, the Nordic countries, most notable Finland and Norway, have introduced dual income taxes (DITs). Under the DIT, all capital income, including corporate profits, is taxed at a uniform, proportional rate. By contrast, labor income is taxed at higher, progressive rates. The DIT could serve as the model for taxing capital income in the member states of the European Union, particularly if agreement is reached on the comprehensive application of the source entitlement principle. This would move the DIT in the direction of the comprehensive business income tax (CBIT), proposed by U.S. Treasury. Under CBIT, all earnings on equity as well as debt are taxed at the company level and exempt at the level of the recipients. Wider adoption of the DIT would meet EU neutrality and subsidiarity requirements, as well as enhance the administrative reach of capital income taxes.

Suggested Citation

  • Sijbren Cnossen, 1999. "Taxing Capital Income in the Nordic Countries: A Model for the European Union?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 18-50, March.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(199903)56:1_18:tciitn_2.0.tx_2-a
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    1. repec:ces:ifodic:v:2:y:2004:i:3:p:14567754 is not listed on IDEAS
    2. Oeffner, Marc, 2005. "Die Duale Einkommensteuer des Sachverständigenrates in der Diskussion," W.E.P. - Würzburg Economic Papers 59, University of Würzburg, Department of Economics.
    3. Bernd Genser & Andreas Reutter, 2007. "Moving Towards Dual Income Taxation in Europe," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(3), pages 436-456, September.
    4. José Mª Durán-Cabré & Alejandro Esteller-Moré, 2014. "Tax professionals' view of the Spanish tax system: efficiency, equity and tax planning," Working Papers 2014/5, Institut d'Economia de Barcelona (IEB).
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    7. Fidel Picos Sánchez & Alberto Gago Rodríguez, 2004. "El impuesto dual: argumentos teóricos e implicaciones de política fiscal," Hacienda Pública Española / Review of Public Economics, IEF, vol. 171(4), pages 103-130, december.
    8. Christian Keuschnigg & Martin Dietz, 2007. "A growth oriented dual income tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(2), pages 191-221, April.
    9. Paul van den Noord & Chistopher Heady, 2001. "Surveillance of Tax Policies: A Synthesis of Findings in Economic Surveys," OECD Economics Department Working Papers 303, OECD Publishing.
    10. Peter Englund, 2003. "Taxing Residential Housing Capital," Urban Studies, Urban Studies Journal Limited, vol. 40(5-6), pages 937-952, May.
    11. Bernd Genser, 2006. "The Dual Income Tax: Implementation and Experience in European Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0625, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    12. Margit Schratzenstaller, 2004. "Towards Dual Income Taxes - a Country Comparative Perspective," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(03), pages 23-30, October.
    13. Clemens Fuest & Alfons J. Weichenrieder & Alfons Weichenrieder, 2002. "Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates," CESifo Working Paper Series 781, CESifo.
    14. José Mª Durán-Cabré & Alejandro Esteller-Moré, 2014. "Tax professionals' view of the Spanish tax system: efficiency, equity and tax planning," Working Papers 2014/5, Institut d'Economia de Barcelona (IEB).
    15. Margit Schratzenstaller, 2004. "Towards Dual Income Taxes - a Country Comparative Perspective," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(3), pages 23-30, October.
    16. Hakelberg, Lukas & Rixen, Thomas, 2020. "Is Neoliberalism Still Spreading? The Impact of International Cooperation on Capital Taxation," SocArXiv tvneu, Center for Open Science.
    17. Stefan Bach & Peter Haan & Ralf Maiterth & Caren Sureth, 2004. "Modelle für die Vermögensbesteuerung von natürlichen Personen und Kapitalgesellschaften: Konzepte, Aufkommen, wirtschaftliche Wirkungen ; Endbericht ; Forschungsprojekt im Auftrag der Bundestagsfrakti," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 1, number pbk1, Enero-Abr.
    18. repec:ces:ifodic:v:3:y:2005:i:1:p:14567534 is not listed on IDEAS
    19. Ganghof, Steffen, 2001. "Global markets, national tax systems, and domestic politics: Rebalancing efficiency and equity in open states' income taxation," MPIfG Discussion Paper 01/9, Max Planck Institute for the Study of Societies.
    20. Friedrich Breyer & Andreas Haufler, 2000. "Health Care Reform: Separating Insurance from Income Redistribution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(4), pages 445-461, August.
    21. Dirk Kiesewetter & Rainer Niemann, 2002. "Neutral Taxation of Pension in a Comprehensive Income Tax," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 59(2), pages 227-248, May.
    22. Bach, Stefan & Bartholmai, Bernd, 2002. "Perspektiven der Vermögensbesteuerung in Deutschland," Study / edition der Hans-Böckler-Stiftung, Hans-Böckler-Stiftung, Düsseldorf, volume 82, number 82, July.
    23. Dirk Kiesewetter & Rainer Niemann, 2002. "Neutral and Equitable Taxation of Pensions as Capital Income," CESifo Working Paper Series 706, CESifo.
    24. Kiesewetter, Dirk, 2002. "Tax neutrality and business taxation in Russia: A proposal for a consumption-based reform of the Russian income and profit tax," Tübinger Diskussionsbeiträge 242, University of Tübingen, School of Business and Economics.
    25. Genser, Bernd, 2001. "Ist eine duale Einkommensteuer einfacher und gerechter als eine umfassende Einkommensteuer?," CoFE Discussion Papers 01/09, University of Konstanz, Center of Finance and Econometrics (CoFE).

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