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Hungarian Small Business Tax and Possibilities to Minimize Distortions from Capital Income Taxation

Author

Listed:
  • Benedek Nobilis

    (Hungarian Ministry of National Economy)

  • András Svraka

    (Hungarian Ministry of National Economy)

Abstract

Governments throughout the EU and OECD countries rely on revenues raised on capital income. Albeit several arguments can be made for keeping these taxes, in their widespread form they hinder capital accumulation and significantly lower potential growth due to their savings and investment distorting nature. At the same time, the actual economic impact of tax types is largely influenced by their structure. An elegant method, which is also simple in its concept, for eliminating the economic distortions of profit taxes is cash-flow taxation which moves income taxes closer to the more growth-friendly value-added taxes. The small business tax, which was introduced in Hungary in 2013, was designed along these principles. In this paper we review the theoretical literature on cash-flow taxation and discuss the main regulatory elements of the small business tax, as well as the solutions elaborated for working out the challenges related to its implementation.

Suggested Citation

  • Benedek Nobilis & András Svraka, 2015. "Hungarian Small Business Tax and Possibilities to Minimize Distortions from Capital Income Taxation," Society and Economy, Akadémiai Kiadó, Hungary, vol. 37(supplemen), pages 87-105, December.
    • Handle: RePEc:aka:soceco:v:37:y:2015:i:supplement:p:87-105
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    More about this item

    Keywords

    corporate taxation; cash-flow taxation; small businesses; tax design;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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