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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. 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.
    3. 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.
    4. Oeffner, Marc, 2005. "Die Duale Einkommensteuer des Sachverständigenrates in der Diskussion," W.E.P. - Würzburg Economic Papers 59, University of Würzburg, Chair for Monetary Policy and International Economics.
    5. repec:ces:ifodic:v:3:y:2005:i:1:p:14567534 is not listed on IDEAS
    6. 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.
    7. 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).
    8. Boss, Alfred, 2000. "Steuer- und Ausgabenpolitik in Deutschland," Kiel Working Papers 975, Kiel Institute for the World Economy (IfW).
    9. Fidel Picos Sánchez & Alberto Gago Rodríguez, 2004. "El impuesto dual: argumentos teóricos e implicaciones de política fiscal," Hacienda Pública Española, IEF, vol. 171(4), pages 103-130, december.
    10. 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.
    11. 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.
    12. 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.
    13. Bach, Stefan & Bartholmai, Bernd, 2002. "Perspektiven der Vermögensbesteuerung in Deutschland," Study / edition der Hans-Böckler-Stiftung, Hans-Böckler-Stiftung, Düsseldorf, volume 82, number 82.
    14. 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.
    15. Dirk Kiesewetter & Rainer Niemann, 2002. "Neutral and Equitable Taxation of Pensions as Capital Income," CESifo Working Paper Series 706, CESifo Group Munich.
    16. Clemens Fuest & Alfons J. Weichenrieder, 2002. "Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates," CESifo Working Paper Series 781, CESifo Group Munich.

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