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Why the Norwegian shareholder income tax is neutral

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  • Jan Södersten

    (Uppsala University)

Abstract

This note extends the work by Sørensen (Int Tax Public Finance 12:777–801, 2005) and others by demonstrating why the Norwegian Shareholder Income Tax may be neutral between the two sources of equity funds, i.e., new share issues and retained earnings, despite the fact that the retention of earnings to finance new investment does not add to the tax benefits. The analysis crucially relies on the assumption that the deduction for the imputed rate of return is capitalized into the market prices of corporate shares. Absent capitalization, the shareholder tax is rather likely to leave the distortions caused by the double taxation of corporate source income unaffected.

Suggested Citation

  • Jan Södersten, 2020. "Why the Norwegian shareholder income tax is neutral," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 32-37, February.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:1:d:10.1007_s10797-019-09544-x
    DOI: 10.1007/s10797-019-09544-x
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    References listed on IDEAS

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    1. Martin Jacob & Jan Södersten, 2013. "Mitigating Shareholder Taxation in Small Open Economies?," Finnish Economic Papers, Finnish Economic Association, vol. 26(1), pages 1-12, Spring.
    2. Tobias Lindhe & Jan Södersten, 2012. "The Norwegian shareholder tax reconsidered," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(3), pages 424-441, June.
    3. Erik Fjærli & Arvid Raknerud, 2009. "The investment and financing decisions of closely held firms when there is a tax on the equity premium," Discussion Papers 594, Statistics Norway, Research Department.
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    Citations

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    Cited by:

    1. Thomas Brasch & Ivan Frankovic & Eero Tölö, 2023. "Corporate taxes and investment when firms are internationally mobile," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(5), pages 1297-1330, October.
    2. Thomas von Brasch & Ivan Frankovic & Eero Tölö, 2021. "Corporate taxes, investment and the self-financing rate. The effect of location decisions and exports," Discussion Papers 955, Statistics Norway, Research Department.
    3. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.

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    More about this item

    Keywords

    Corporate and shareholder taxation; Tax neutrality; Cost of capital;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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