Allocating Business Income between Capital and Labor under a Dual Income Tax: The Case of Iceland
November 1, 2012
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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.
Subject: Capital income, Income, Labor, Minimum wages, National accounts, Personal income tax, Taxes
Keywords: business owner, capital income, Capital income, CHB income, CHB owner, Dual income tax, Income, minimum wage, Minimum wages, Personal income tax, small business taxation, wage, wage income, WP
Pages:
27
Volume:
2012
DOI:
Issue:
263
Series:
Working Paper No. 2012/263
Stock No:
WPIEA2012263
ISBN:
9781475515411
ISSN:
1018-5941
