Dynamic Behaviour of the Firm Under Dual Income Taxation
This study examines certain incentive aspects of the dual income tax system (DIT) operated in the four major Nordic countries since the beginning of the 1990s. In this tax system capital income is taxed at a flat rate, whereas earned income is subject to a conventional progressive schedule. The analysis focuses on the splitting of dividend income received from a closely held firm into capital and earned income parts. A deterministic, dynamic investment model as developed by Sinn (1991) is applied. This basic model is extended in several directions. The study in chapters 2 and 3 reveals that Nordic DIT may have strong effects on the firm?s investment and financing behaviour. In extreme cases the firm?s cost of capital can even be negative. These effects may also have efficiency and welfare consequences. The study also shows that the distortions are very sensitive to the content of the capital base concept. For instance, when financial assets are included in the capital base the firm?s marginal return on capital is at the level of the nominal interest rate, thus eliminating the real distortions discussed above.
|Date of creation:||01 Jan 1999|
|Contact details of provider:|| Postal: Arkadiankatu 7, P.O. Box 1279, FI-00101 Helsinki|
Phone: +358 295 519 400
Fax: +358 295 519 599
Web page: http://www.vatt.fi/
More information through EDIRC
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:fer:resrep:51. 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: (Anita Niskanen)
If references are entirely missing, you can add them using this form.