Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2011:6: The Norwegian Shareholder Tax Reconsidered

Jan Södersten () and Tobias Lindhe ()
Additional contact information
Jan Södersten: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Tobias Lindhe: Uppsala Center for Fiscal Studies, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: In an article in International Tax and Public Finance, Peter Birch Sørensen (2005) gives an in-depth account of the new Norwegian Shareholder Tax, which allows the shareholders a deduction for an imputed risk-free rate of return. Sørensen’s positive evaluation appears as reasonable for a closed economy where the deduction for the imputed return is capitalized into the market prices of corporate shares. We show that in a small open economy where no capitalization occurs, the Norwegian shareholder tax is likely to leave the distortions caused by the corporate income tax unaffected, and to add new distortions to shareholders’ portfolio decisions.

Keywords: Tax neutrality; open economy; shareholder taxation; corporate-personal tax integration; small firms

JEL-codes: H24; H25

28 pages, April 28, 2011

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