<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

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

Nordic Tax Journal

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"Revenue-maximizing top earned income tax rate in the presence of income-shifting"}

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,...

ETI (e)	Share of income-shifting in ETI (s)	Paretoparameter (a)	Top tax rate on dividends (including commodity tax) (t₂)	Revenue-maximizing top tax rate (t^max)
0.2	0	3	-	0.63
0.1	0.5	2.25	0.40	0.85
0.2	0.5	2.25	0.40	0.75
0.3	0.5	2.25	0.40	0.68
0.5	0.5	2.25	0.40	0.58
0.1	0.7	2.25	0.40	0.87
0.2	0.7	2.25	0.40	0.78
0.3	0.7	2.25	0.40	0.71
0.5	0.7	2.25	0.40	0.62

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

Article Category: Article

Published Online: Nov 06, 2017

Page range: 100 - 107

Received: Jun 02, 2017

Accepted: Aug 10, 2017

DOI: https://doi.org/10.1515/ntaxj-2017-0007

Keywords
the Laffer curve, income-shifting, tax policy

© 2017 K. Kotakorpi and T. Matikka

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The revenue-maximizing top earned income tax rate for different parameter values.

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

Article Category: Article

Published Online: Nov 06, 2017

Page range: 100 - 107

Received: Jun 02, 2017

Accepted: Aug 10, 2017

DOI: https://doi.org/10.1515/ntaxj-2017-0007

Keywordsthe Laffer curve, income-shifting, tax policy

© 2017 K. Kotakorpi and T. Matikka

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The revenue-maximizing top earned income tax rate for different parameter values.

Keywords
the Laffer curve, income-shifting, tax policy