Income Shifting within a Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993

Scandinavian Journal of Economics. 02/2011; 113(1):120-144. DOI: 10.1111/j.1467-9442.2010.01635.x

Posted: 21 Aug 2014

See all articles by Jukka Pirttila

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Hakan Selin

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2011

Abstract

Dual income tax systems can suffer from income that shifts from progressively taxed labour income to capital income, which is taxed at a lower, flat rate. This paper empirically examines the 1993 Finnish dual income tax reform, which radically reduced the marginal tax rates on capital income for some, but not all, taxpayers. We measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform. We find that the reform led to a small positive impact on overall taxable income, but part of the positive response was probably offset by income shifting among the self-employed.

Keywords: Taxable income, tax avoidance, dual tax system

JEL Classification: C21, H21, H31

Suggested Citation

Pirttila, Jukka and Selin, Hakan, Income Shifting within a Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993 (February 2011). Scandinavian Journal of Economics. 02/2011; 113(1):120-144. DOI: 10.1111/j.1467-9442.2010.01635.x . Available at SSRN: https://ssrn.com/abstract=2484358

Jukka Pirttila (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

Hakan Selin

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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