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Tax Reforms, Dividend Policy and Trends in Income Inequality Empirical Evidence based on Norwegian Data

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  • Erik Fjærli
  • Rolf Aaberge

    ()
    (Statistics Norway)

Abstract

This paper discusses the degree of intertemporal comparability of national estimates of income inequality when data are based on income tax records. The problem of comparability is particular crucial when major tax reforms have taken place and pre- and post-reform income data are used as basis for comparing trends in income inequality. Particular attention is paid to the definition and measurement of income from shares. The conventional wisdom that the increase in inequality in Norway during the 1990’s was caused by a rising disequalizing contribution of capital income is questioned by the present results. The rise in income inequality coincided with the implementation of a major tax reform that affected the financing incentives in the corporate sector and the income shifting incentives in small enterprises. Thus, when tax reported dividends are used as a measurement of returns from shares, changes in the estimated income inequality may be a result of changes in the income reporting behavior rather than factual changes in the distribution of income. Our results suggest that the observed rise in income inequality during the 1990's to some extent can be explained by a change in the dividend policy of the corporations, induced by the tax reform in 1992. When the total return from shares is taken into account, we find less increase in the level of inequality and less increase in the contribution to inequality from share ownership.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 284.

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Date of creation: Aug 2000
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Handle: RePEc:ssb:dispap:284

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Keywords: Income definition; capital income; corporate income; tax reform; income inequality;

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References

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  1. Michael P. Devereux & R. Glenn Hubbard, 2000. "Taxing Multinationals," NBER Working Papers 7920, National Bureau of Economic Research, Inc.
  2. Aaberge, Rolf, et al, 2000. " Unemployment Shocks and Income Distribution: How Did the Nordic Countries Fare during Their Crises?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 77-99, March.
  3. Rolf Aaberge, 2006. "Gini’s Nuclear Family," Discussion Papers 491, Research Department of Statistics Norway.
  4. Gordon, Roger H. & Bradford, David F., 1980. "Taxation and the stock market valuation of capital gains and dividends : Theory and emphirical results," Journal of Public Economics, Elsevier, vol. 14(2), pages 109-136, October.
  5. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "Taxing Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-1, July.
  6. Hans-Werner Sinn, 1991. "Taxation and the Cost of Capital: The "Old" View, the "New" View, and Another View," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 25-54 National Bureau of Economic Research, Inc.
  7. Roger H. Gordon & Jeffrey K. MacKie-Mason & R. Glenn Hubbard, 1995. "The Importance of Income Shifting to the Design and Analysis of Tax Policy," NBER Chapters, in: Taxing Multinational Corporations, pages 29-38 National Bureau of Economic Research, Inc.
  8. Hicks, J. R., 1975. "Value and Capital: An Inquiry into some Fundamental Principles of Economic Theory," OUP Catalogue, Oxford University Press, edition 2, number 9780198282693.
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Citations

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Cited by:
  1. Erling Røed Larsen, 2002. "Consumption Inequality in Norway in the 80s and 90s," Discussion Papers 325, Research Department of Statistics Norway.
  2. Almås, Ingvild & Havnes, Tarjei & Mogstad, Magne, 2011. "Baby Booming Inequality? Demographic Change and Inequality in Norway, 1967{2004," Discussion Paper Series in Economics 6/2010, Department of Economics, Norwegian School of Economics.
  3. Aaberge, Rolf & Langørgen, Audun & Mogstad, Magne & Østensen, Marit, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," IZA Discussion Papers 3686, Institute for the Study of Labor (IZA).
  4. Aaberge, Rolf & Mogstad, Magne, 2007. "On the Definition and Measurement of Chronic Poverty," IZA Discussion Papers 2659, Institute for the Study of Labor (IZA).
  5. Rolf Aaberge, 2006. "Gini’s Nuclear Family," Discussion Papers 491, Research Department of Statistics Norway.
  6. Rolf Aaberge & Magne Mogstad, 2010. "Robust inequality comparisons," Working Papers 163, ECINEQ, Society for the Study of Economic Inequality.
  7. Ingvild Almås & Tarjei Havnes & Magne Mogstad, 2011. "Baby booming inequality? Demographic change and earnings inequality in Norway, 1967–2000," Journal of Economic Inequality, Springer, vol. 9(4), pages 629-650, December.
  8. Rolf Aaberge & Anthony B. Atkinson, 2008. "Top Incomes in Norway," Discussion Papers 552, Research Department of Statistics Norway.

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