The Theory of Optimal Taxation: New Developments and Policy Relevance

The theory of optimal taxation has often been criticized for being of little practical policy relevance, due to a lack of robust theoretical results. This paper argues that recent advances in optimal tax theory has made that theory easier to apply and may help to explain some current trends in international tax policy. Covering the taxation of labour income and capital income as well as indirect taxation, the paper also illustrates how some of the key results in optimal tax theory may be derived in a simple, heuristic manner.optimal taxation; uniform taxation; tax neutrality

The Theory of Optimal Taxation: What is the Policy Relevance?

The paper discusses the implications of optimal tax theory for the debates on uniform commodity taxation and neutral capital income taxation. While strong administrative and political economy arguments in favor of uniform and neutral taxation remain, recent advances in optimal tax theory suggest that the information needed to implement the differentiated taxation prescribed by optimal tax theory may be easier to obtain than previously believed. The paper also points to the strong similarity between optimal commodity tax rules and the rules for optimal source-based capital income taxation.optimal taxation; uniform taxation; tax neutrality

From the Global Income Tax To the Dual Income Tax: Recent Tax Reforms in The Nordic Countries.

The paper discusses the recent drive towards a system of "dual" income taxation (DIT) in the Nordic countries. The pure version of this system combines progressive taxation of labour and transfer incomes with a proportional tax on income from capital at a level equal to the corporate income tax rate. The paper considers the motives for the introduction of this new income tax system, ranging from rather abstract theoretical arguments to very pragmatic practical considerations. While the Nordic DIT system violates the principles of the conventional personal income tax, it is argued that it may in fact be more in line with the philosophy of a true Haig-Simons comprehensive income tax. It is also suggested that the DIT system may cause fewer distortions to ressource allocation than the conventional income tax. On the debit side, the paper points out several practical problems of taxing income from small enterprises under the differentiated income tax.

Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal

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 offsets 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.tax neutrality; shareholder income tax; corporate-personal tax integration

Dual Income Taxation: Why and how?

The dual income tax combines a progressive tax schedule for labour income with a low flat tax rate on capital income and corporate income. This paper restates the case for the dual income tax and discusses alternative methods of taxing business income under such a tax system, paying special attention to the taxation of income from closely held corporations. It is argued that the imputed normal return to shares in unlisted companies should be taxed as capital income, while above-normal returns should be subject to labour income tax. The paper demonstrates that such a tax scheme can be designed to be neutral towards the firm’s investment and financing decisions and towards the decisions of shareholders to realize their shares.dual income tax, tax neutrality, taxation of business income, shareholder income tax

Neutral Taxation of Shareholder Income: A Norwegian Tax Reform Proposal

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.tax neutrality, shareholder income tax, corporate-personal tax integration

Company Tax Reform in the European Union.

The European Commission recently proposed to move towards a consolidated tax base for European multinational companies, to be allocated across EU member states through a system of formula apportionment. This paper argues that while the Commission’s four alternative blueprints for company tax reform may reduce existing problems of transfer pricing, they will also create new distortions as long as existing tax rate differentials are maintained. The paper also analyzes the changes in international tax spillovers which will occur as a result of a switch from the current system of separate accounting to formula apportionment. The final part of the paper discusses whether more conventional corporate tax harmonization should still be a long term policy goal for the EU and presents quantitative estimates of the effciency gains from harmonization.corporate tax reform in the EU; formula apportionment; tax harmonization

Can Capital Income Taxes Survive? And Should They?

The paper surveys some main results in the theory of capital income taxation in the open economy; reviews recent trends in international taxation, and discusses alternative blueprints for fundamental capital income tax reform from the perspective of an open economy faced with growing mobility of capital income tax bases.

Can Capital Income Taxes Survive? And Should They?

The paper surveys some main results in the theory of capital income taxation in the open economy; reviews recent trends in international taxation, and discusses alternative blueprints for fundamental capital income tax reform from the perspective of an open economy faced with growing mobility of capital income tax bases.