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Revenue-maximizing top earned income tax rate in the presence of income-shifting

Author

Listed:
  • Kotakorpi Kaisa

    (VATT Institute for Economic Research and University of Turku, P. O. Box 1279, 00101Helsinki, Finland)

  • Matikka Tuomas

    (VATT Institute for Economic Research and University of Turku, P. O. Box 1279, 00101Helsinki, Finland)

Abstract
We provide an analysis of the revenue-maximizing top earned income tax rate for a country with one of the highest levels of earnings taxation in the world, Finland, and compare it to the current level of taxation. We account for the effect of income-shifting possibilities in the calculations and find that the current top tax rate on earnings in Finland is likely to be below the revenue-maximizing rate. We provide an explicit account of assumptions behind the Laffer curve calculations and demonstrate that policy conclusions depend critically on non-trivial choices regarding, for example, how the current top tax rate is calculated. The assumptions in the Laffer curve calculations need to be made explicit if the calculations are to provide guidance for policy.

Suggested Citation

  • Kotakorpi Kaisa & Matikka Tuomas, 2017. "Revenue-maximizing top earned income tax rate in the presence of income-shifting," Nordic Tax Journal, Sciendo, vol. 2017(1), pages 100-107, January.
    • Handle: RePEc:vrs:notajo:v:2017:y:2017:i:1:p:100-107:n:7
    DOI: 10.1515/ntaxj-2017-0007
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    References listed on IDEAS

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    More about this item

    Keywords

    the Laffer curve; income-shifting; tax policy;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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