On the optimality of the Nordic system of dual income taxation

Nielsen, Søren Bo; Sørensen, Peter Birch

doi:10.1016/s0047-2727(96)01597-6

Cited by 109 publications

(110 citation statements)

References 10 publications

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“…Our specification of the government budget constraint implies that the government can not raise the welfare of steady-state generations by transferring resources away from generations living through the transition. We thus not only clearly isolate efficiency impacts from effects on the intergenerational distribution of resources, but also model grandfathering schemes in actual tax reforms protecting agents that have not been able to anticipate the change in the tax rules (see also Nielsen and Sørensen (1997)). 20 The government maximizes a social welfare function Γ:…”

Section: Governmentmentioning

confidence: 99%

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Redistribution and Education Subsidies are Siamese Twins

2005

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We develop a model of human capital formation with endogenous labor supply and heterogeneous agents to explore the optimal level of education subsidies along with the optimal progressive schedule of the labor income tax and optimal capital income taxes. Subsidies on education ensure efficiency in human capital accumulation, while taxes on skilled labor help to redistribute income towards the less able. We thus provide a rationale for the widely observed presence of education subsidies. The actually observed tax codes and level of education subsidies suggest that a large part of education subsidies can be justified on these grounds.

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Section: Governmentmentioning

confidence: 99%

“…The third extension of Nielsen and Sørensen (1997) is that we allow for education subsidies. We demonstrate that education subsidies eliminate the case for a dual income tax with positive capital taxes if preferences are additively separable.…”

Section: Introductionmentioning

confidence: 99%

Redistribution and Education Subsidies are Siamese Twins

2005

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“…Optimal labor taxes increase with stronger redistributional desires and capital income taxes should increase accordingly-but only for efficiency reasons. In contrast to representative agent models (see, e.g., Atkinson and Sandmo 1980;Nielsen and Sørensen 1997;Jones et al 1993Jones et al , 1997and Judd 1999), we do not have to arbitrarily exclude lump-sum taxes as a policy instrument to prevent the optimal tax problem from becoming trivial.…”

Section: Introductionmentioning

confidence: 99%

Human capital and optimal positive taxation of capital income

Jacobs

Bovenberg

2009

Int Tax Public Finance

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This paper analyzes optimal linear and non-linear taxes on capital and labor incomes in a life-cycle model of human capital investment, financial savings, and labor supply with heterogenous individuals. A dual income tax with a positive marginal tax rate on not only labor income but also capital income is optimal. The positive tax on capital income serves to alleviate the distortions of the labor tax on human capital accumulation. The optimal marginal tax rate on capital income is lower than that on labor income if savings are elastic compared to investment in human capital, substitution between verifiable and non-verifiable inputs in human capital formation is difficult, and most investments in human capital are verifiable so that education subsidies can directly reduce the tax wedge on learning. Numerical calculations suggest that the optimal marginal tax rate on capital income is substantial.

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“…Because all capital income was taxed uniformly and business income was taxed only once, the Norwegian DIT was in principle neutral towards investment and financing decisions. 26 The rationale for the Nordic Dual Income Tax is explored in Sørensen (1994Sørensen ( , 2005b and Nielsen and Sørensen (1997). Sijbren Cnossen's preferred version of the system is described in Cnossen (2000).…”

Section: Taxing the Full Return To Capital: The Dual Income Taxmentioning

confidence: 99%

Can Capital Income Taxes Survive? And Should They?

Sørensen¹

2007

CESifo Economic Studies

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On the optimality of the Nordic system of dual income taxation

Cited by 109 publications

References 10 publications

Redistribution and Education Subsidies are Siamese Twins

Redistribution and Education Subsidies are Siamese Twins

Human capital and optimal positive taxation of capital income

Can Capital Income Taxes Survive? And Should They?

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