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

November 1, 2012

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Thornton Matheson, and Pall Kollbeins. Allocating Business Income between Capital and Labor under a Dual Income Tax: The Case of Iceland, (USA: International Monetary Fund, 2012) accessed November 21, 2024

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.

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

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/263
Stock No:

WPIEA2012263
ISBN:

9781475515411
ISSN:

1018-5941

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