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International Tax and Public Finance

, Volume 1, Issue 1, pp 57–79 | Cite as

From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries

  • Peter Birch Sørensen
Policy Watch

Abstract

The paper discusses the recent drive toward a system of dual income taxation (DIT) in the Nordic countries. The pure version of this system combines progressive taxation of labor and transfer incomes with a proportional tax on income from capital at a level equal to the corporate income tax rate. The paper considers the motives for the introduction of this new income tax system, ranging from abstract theoretical arguments to very pragmatic considerations. While the Nordic DIT system violates the principles of the conventional personal income tax, it is argued that it may in fact be more in line with the philosophy of a true Haig-Simons comprehensive income tax. It is also suggested that the DIT system may cause fewer distortions to resource allocation than the conventional income tax. On the debit side, the paper points out several practical problems of taxing income from small enterprises under the differentiated income tax.

Key words

income tax reform global income tax dual income tax horizontal equity vertical equity taxation and efficiency 

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References

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Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • Peter Birch Sørensen
    • 1
  1. 1.Economic Policy Research UnitCopenhagen Business SchoolCopenhagen KDenmark

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