Dual Income Taxation: Why and how?

Peter Birch Sørensen

No 1551, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: dual income tax; tax neutrality; taxation of business income; shareholder income tax (search for similar items in EconPapers)
JEL-codes: H24 H25 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1551

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