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Allocating Business Income between Capital and Labor under a Dual Income Tax: The Case of Iceland
Author:
Ms. Thornton Matheson
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and
Mr. Pall Kollbeins null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 263
Language:
English
Publication Date:
01 Nov 2012
DOI:
https://doi.org/10.5089/9781475515411.001
ISBN:
9781475515411
ISSN:
1018-5941
Pages:
27
Keywords:
WP; wage; minimum wage; CHB owner; Dual income tax; small business taxation; wage income; capital income; CHB income; business owner; Income; Capital income; Personal income tax; Minimum wages
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund