OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

Tax Reform in Norway

A Focus on Capital Taxation You or your institution have access to this content

Authors:
Oliver Denk1
Author Affiliations
  • 1: OECD, France

Publication Date
03 Apr 2012
Bibliographic information
No.:
950
Pages
40
DOI
10.1787/5k9bls0vpd5d-en

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Norway’s dual income tax system achieves high levels of revenue collection and income redistribution, without overly undermining economic performance and while paying attention to environmental externalities. It treats capital and labour income in different ways: capital income is taxed at a single low rate, while labour income is taxed at progressive rates. However, effective tax rates on savings vary widely across asset classes. The favourable treatment of owner-occupied housing relative to financial savings should be reduced, preferably by taxing imputed rents at the standard 28% statutory rate. The wealth tax implies very high effective tax rates on savings, indicating that it either gives rise to tax avoidance or significantly inhibits growth. The government should investigate the issue and, if the growth-equity trade-off is too unfavourable to growth, phase out or lower the wealth tax. To restrain tax avoidance by the wealthy, the base of the gift and inheritance tax should be broadened. Overall, the reform package recommended in this paper would improve the allocation of capital and increase work and investment incentives. It could be designed to be broadly neutral in regard to income redistribution and public revenue.
Keywords:
Norway, taxation, capital taxation, wealth tax, rate of return allowance, allowance for corporate equity, dual income tax system, own-occupied housing
JEL Classification:
  • D9: Microeconomics / Intertemporal Choice and Growth
  • H2: Public Economics / Taxation, Subsidies, and Revenue
  • R21: Urban, Rural, Regional, Real Estate, and Transportation Economics / Household Analysis / Housing Demand
  • R38: Urban, Rural, Regional, Real Estate, and Transportation Economics / Real Estate Markets, Production Analysis, and Firm Location / Government Policy; Regulatory Policy