Optimal Taxation when access to Income Shifting is Heterogeneous

• In Event: Optimal Capital and Firm Taxation

Abstract

This paper characterizes the optimal labour and capital income tax schedules when access to income shifting opportunities is heterogeneous. I analyse a two-period model where individuals face both variable and fixed costs when shifting income between the labour and capital income tax bases. Income shifting behaviour leads to opposing effects on tax rates: a decrease in labour income tax rates and an increase in capital income tax rates. The capital income tax rate increases with labour income when the extensive, rather than intensive, shifting elasticity is sufficiently high and increases with income.

Author

• Arnaldur Kristjansson, askristjansson@hi.is