Advanced Search
MyIDEAS: Login to save this paper or follow this series

Taxing capital income in Hungary and the European Union


Author Info

  • Dethier, Jean-Jacques
  • John, Christoph


Countries seeking membership in the European Union (EU) cannot look to the EU for a blueprint for reforming their system for taxing capital income. Indeed, it is hard to generalize about tax systems in the EU. Most member states apply fairly low tax rates to interest payments and discriminate against profit distributions. But tax rates, exemption levels, and methods of tax integration differ greatly within and across countries, and there is almost no harmonization of methods for taxing capital income. Approaches to taxing capital gains vary greatly, and distortions arise from the treatment of various sources of capital income. In 1993, when the EU began efforts to integrate capital markets, member countries proposed various ways to harmonize capital income taxes, including a proposal to introduce a withholding tax on interest income of residents of member states, with a minimum rate of 15 percent (revised to 10 percent). Under this scheme all interest on bank deposits and government and private bonds would be taxed and there might also be a final withholding tax on residents interest income. But the proposal was not accepted and the EU Commission decided to maintain the status quo, not to pressure member countries to harmonize company taxes. But Hungary could look for models in the Nordic countries (especially Norway and Sweden), Austria, and Finland, which have undertaken far-reaching reforms of capital income taxation. In most EU countries capital gains are either not (directly) taxed or are not taxed systematically. In Finland and Norway identical tax rates are applied to all types of capital income, including capital gains. The centerpiece of the"Scandinavian model"is a dual income tax, combining a progressive tax on personal income with a flat-rate tax on all types of capital income. The"Scandinavian model"contrasts sharply with the"comprehensive income taxation"model, under which a single (progressive) tax schedule is applied to income from all sources. In Austria the treatment of different types of capital income is relatively uniform but the composite tax burden on capital income resembles the highest personal income tax rate rather than a reduced rate. Austria's rate of tax evasion was high, but a 10 percent withholdingtax applied to all interest-bearing assets has reduced discrimination against honest taxpayers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1903.

as in new window
Date of creation: 31 Mar 1998
Date of revision:
Handle: RePEc:wbk:wbrwps:1903

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Web page:
More information through EDIRC

Related research

Keywords: Economic Theory&Research; Public Sector Economics&Finance; International Terrorism&Counterterrorism; Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Environmental Economics&Policies; Public Sector Economics&Finance; International Terrorism&Counterterrorism; Banks&Banking Reform;


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jeffrey Sachs & Andrew M. Warner, 1996. "Achieving Rapid Growth in the Transition Economies of Central Europe," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0073, CASE-Center for Social and Economic Research.
  2. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 31(2), pages 762-830, June.
  3. 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, Springer, vol. 1(1), pages 57-79, February.
  4. Joseph E. Stiglitz, 1991. "Government, Financial Markets, and Economic Development," NBER Working Papers 3669, National Bureau of Economic Research, Inc.
  5. Schmidt-Hebbel, Klaus & Serven, Luis & Solimano, Andres, 1994. "Saving, investment, and growth in developing countries : an overview," Policy Research Working Paper Series, The World Bank 1382, The World Bank.
  6. Peter Birch Soerensen, . "Changing Views of the Corporate Income Tax," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 95-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  7. Holzmann, Robert, 1992. "Tax Reform in Countries in Transition: Central Policy Issues," Public Finance = Finances publiques, , , vol. 47(Supplemen), pages 233-55.
  8. Sorensen, Peter Birch, 1995. "Changing Views of the Corporate Income Tax," National Tax Journal, National Tax Association, vol. 48(2), pages 279-94, June.
  9. Mintz, Jack M. & Tsiopoulos, Thomas, 1994. "The effectiveness of corporate tax incentives for foreign investment in the presence of tax crediting," Journal of Public Economics, Elsevier, Elsevier, vol. 55(2), pages 233-255, October.
  10. Roger H. Gordon & Joel Slemrod, 1988. "Do We Collect Any Revenue from Taxing Capital Income?," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy: Volume 2, pages 89-130 National Bureau of Economic Research, Inc.
  11. Genser, Bernd & John, Christoph, 1992. "Reform of the GDR Tax System: A Blueprint for East European Economies?," Public Finance = Finances publiques, , , vol. 47(Supplemen), pages 335-48.
  12. J. R. King & Vito Tanzi, 1995. "The Taxation of Financial Assets," IMF Working Papers, International Monetary Fund 95/46, International Monetary Fund.
Full references (including those not matched with items on IDEAS)



This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1903. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.