IMF Staff Country Reports

Iceland: Technical Assistance Report-Optimal Reform and Distributional Analysis of the Personal Income Tax

Publication Date:

November 17, 2015

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

This paper discusses key findings and recommendations of the Technical Assistance Report on Optimal Reform and Distributional Analysis of the Personal Income Tax (PIT). With regard to reforming the PIT schedule, it recommends that the basic credit be increased and made fully refundable to all taxpayers age 18 and older. To avoid paying this benefit to young singles, such as students, who generally have other means of support, it could be conditioned on a certain level of labor earnings. This credit should be rapidly phased out as labor income rises, and the initial PIT rate should be significantly reduced. The current top PIT rate does not need reform, although the threshold for that rate should ideally be raised.

Series:

Country Report No. 2015/315

Subject:

Income distribution Income tax systems Marginal effective tax rate National accounts Personal income Personal income tax Tax policy Taxes