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Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal

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  • Peter Birch Sørensen
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    Abstract

    A Norwegian tax reform committee recently proposed a personal tax on the realized income from shares after deduction for an imputed risk-free rate of return. This paper describes the design of the proposed shareholder income tax and shows that it will be approximately neutral in several important dimensions, provided that full loss o.sets are granted. Thus the tax allows some non-distortionary double taxation of corporate equity income. With an appropriate choice of tax rates, it also solves the problem of income shifting under a dual income tax. The final part of the paper clarifies the differences between the shareholder income tax and previous proposals for neutral capital income taxation.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2003/wp-cesifo-2003-09/cesifo1_wp1036.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1036.

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    Date of creation: 2003
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    Handle: RePEc:ces:ceswps:_1036

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    Keywords: tax neutrality; shareholder income tax; corporate-personal tax integration;

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    References

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    1. Alan J. Auerbach, 1988. "Retrospective Capital Gains Taxation," NBER Working Papers 2792, National Bureau of Economic Research, Inc.
    2. Bonds, Stephen R. & Devereux, Michael P., 1995. "On the design of a neutral business tax under uncertainty," Journal of Public Economics, Elsevier, vol. 58(1), pages 57-71, September.
    3. Lindhe, Tobias & Södersten, Jan & Öberg, Ann, 2001. "Economic Effects of Taxing Closed Corporations under a Dual Income Tax," Working Paper Series 2001:16, Uppsala University, Department of Economics.
    4. Gordon, Roger H, 1985. "Taxation of Corporate Capital Income: Tax Revenues versus Tax Distortions," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 1-27, February.
    5. Mikael Apel & Jan Södersten, 1999. "Personal Taxation and Investment Incentives in a Small Open Economy," International Tax and Public Finance, Springer, vol. 6(1), pages 79-88, February.
    6. Erik Fjaerli & Diderik Lund, 2001. "The choice between owner's wages and dividends under the dual income tax," Finnish Economic Papers, Finnish Economic Association, vol. 14(2), pages 104-119, Autumn.
    7. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer, vol. 8(2), pages 191-210, March.
    8. Diderik Lund, 2002. "Petroleum Tax Reform Proposals in Norway and Denmark," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 37-56.
    9. Alan J. Auerbach & David F. Bradford, 2001. "Generalized Cash Flow Taxation," Working Papers 131, Princeton University, Department of Economics, Center for Economic Policy Studies..
    10. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
    11. Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
    12. Michael Keen & John King, 2002. "The Croatian profit tax: an ACE in practice," Fiscal Studies, Institute for Fiscal Studies, vol. 23(3), pages 401-418, September.
    13. Sandmo, Agnar, 1979. "A note on the neutrality of the cash flow corporation tax," Economics Letters, Elsevier, vol. 4(2), pages 173-176.
    14. Michael Devereux & Harold Freeman, 1991. "A general neutral profits tax," Fiscal Studies, Institute for Fiscal Studies, vol. 12(3), pages 1-15, August.
    15. Atkinson, A B & Sandmo, A, 1980. "Welfare Implications of the Taxation of Savings," Economic Journal, Royal Economic Society, vol. 90(359), pages 529-49, September.
    16. Sandmo, Agnar, 1989. "Differential taxation and the encouragement of risk-taking," Economics Letters, Elsevier, vol. 31(1), pages 55-59.
    17. Fane, G., 1987. "Neutral taxation under uncertainty," Journal of Public Economics, Elsevier, vol. 33(1), pages 95-105, June.
    18. Diderik Lund, 2002. "Taxation, Uncertainty, and the Cost of Equity," International Tax and Public Finance, Springer, vol. 9(4), pages 483-503, August.
    19. Peter Sørensen, 1994. "From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries," International Tax and Public Finance, Springer, vol. 1(1), pages 57-79, February.
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    Cited by:
    1. Panteghini, Paolo M., 2006. "S-based taxation under default risk," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1923-1937, November.
    2. Vidar Christiansen, 2004. "Norwegian Income Tax Reforms," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 2(3), pages 09-14, October.
    3. Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2007. "Nordic dual income taxation of entrepreneurs," International Tax and Public Finance, Springer, vol. 14(4), pages 407-426, August.
    4. Lachmund, Andreas & Kiesewetter, Dirk, 2004. "Wirkungen einer Abgeltungssteuer auf Investitionsentscheidungen und Kapitalstruktur von Unternehmen," Tübinger Diskussionsbeiträge 278, University of Tübingen, School of Business and Economics.

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