How Successful is the Dual Income Tax? Evidence from the Finnish Tax Reform of 1993

Jukka Pirttilä and Håkan Selin

No 223, Working Papers from Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE

Abstract: Dual income tax systems have become increasingly popular; yet, relatively little is known about the consequences of implementing such tax systems. This paper uses a representative panel of tax payers from the 1993 Finnish tax reform to measure how overall taxable income and the relative shares of capital income and labour income reacted to the reform. The Finnish tax reform appears to be particularly suitable for analysing the effect of separating labour and capital income tax bases. The reform radically reduced the marginal tax rates on capital income to some, but not all, taxpayers, while the taxation of labour income was not reformed at the same time. 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; income shifting; dual tax system (search for similar items in EconPapers)
JEL-codes: C21 H21 H31 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2006-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Working Paper: How Successful is the Dual Income Tax? Evidence from the Finnish Tax Reform of 1993 (2006)
Working Paper: How Successful is the Dual Income Tax? Evidence from the Finnish Tax Reform of 1993 (2006)
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