TY - JOUR
T1 - On the optimality of the Nordic system of dual income taxation
AU - Nielsen, Søren Bo
AU - Sørensen, Peter Birch
N1 - JEL classification: H21, H24
PY - 1997
Y1 - 1997
N2 - In recent years the Nordic countries have introduced a so-called dual income tax which combines a proportional tax on capital income with progressive taxation of labour income. The paper argues that this asymmetric treatment of the two types of income can be defended on pure efficiency grounds, because the progressivity of the labour income tax serves to reduce the private return to human capital investment, thereby offsetting the tendency of a proportional comprehensive income tax to discriminate in favour of such investment. The analysis is based on an overlapping generations model of a small open economy where consumers face a trade-off between investment in human capital and investment in non-human capital. Extended versions of the model allow for liquidity constraints and an endogenous labour-leisure choice
AB - In recent years the Nordic countries have introduced a so-called dual income tax which combines a proportional tax on capital income with progressive taxation of labour income. The paper argues that this asymmetric treatment of the two types of income can be defended on pure efficiency grounds, because the progressivity of the labour income tax serves to reduce the private return to human capital investment, thereby offsetting the tendency of a proportional comprehensive income tax to discriminate in favour of such investment. The analysis is based on an overlapping generations model of a small open economy where consumers face a trade-off between investment in human capital and investment in non-human capital. Extended versions of the model allow for liquidity constraints and an endogenous labour-leisure choice
U2 - 10.1016/S0047-2727(96)01597-6
DO - 10.1016/S0047-2727(96)01597-6
M3 - Journal article
SN - 0047-2727
VL - 63
SP - 311
EP - 329
JO - Journal of Public Economics
JF - Journal of Public Economics
IS - 3
ER -