Allocating Business Income between Capital and Labor under a Dual Income Tax : The Case of Iceland

Author/Editor: Thornton Matheson ; Pall Kollbeins
Publication Date: November 01, 2012
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: In contrast to most Scandinavian countries, Iceland allocates the income of closely held businesses (CHBs) between capital and labor based on administratively set minimum wages rather than an imputed return to book assets. This paper contrasts the relative tax burdens of the current minimum wage system with asset-based allocation methods, and finds that switching to an asset-based method could increase tax revenues from CHBs in a generally progressive manner. Predictably, the shift would also raise the tax burden of skilled labor-intensive industries more than it would that of capital-intensive industries.
Series: Working Paper No. 12/263
Subject(s): Income taxes | Iceland | Corporate taxes | Capital | Labor | Taxation

Publication Date: November 01, 2012
ISBN/ISSN: 9781475515411/1018-5941 Format: Paper
Stock No: WPIEA2012263 Pages: 27
US$18.00 (Academic Rate:
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