Trends in top income shares in      Nordic Countries        Matti Tuomala 7.11.2011• A U-shape pattern over 1966-2004(-9) ...
Top income (pre tax) shares (1%) in Nordic         Countries 1945-2004(9)                                                 ...
Seeking explanations for increasing the         top income shares• Less progressive income taxation  (Atkinson, 2002, UK &...
Why the U-shape pattern in Nordic        countries? Income shifting• In the 1990s Norway, Sweden and Finland  adopted the ...
The role of DIT• The major weakness of the DIT is that the  individual burden of the tax is lower, the  higher is the shar...
DIT: Income shifting• The 1993 tax reform led to an increasing  trend of the share of capital income  (dividends) and decl...
Marginal tax rate and gross income items for top 1 %       in 1987-2009 in Finland (Riihelä et al)                      10...
Marginal tax rates and income shares for top 1 %in Finland (Riihelä et al)                         90                     ...
Marginal tax rate for top 1 and                            top 90–99 per cent                       60Marginal tax rate, %...
Real average disposable income in desiles, top 5 and 1 %,         in 1990-2009 in Finland (Riihelä et al)             1600...
Real median and mean                                     disposable income in 1987-2009 in Finland                        ...
What is equitable growth?• Equitable growth is economic growth that is widely and  fairly distributed so that it benefits ...
What is equitable growth?• For example, in Finland , the top one  percent captured about one fifth (18%) of  disposable in...
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Matti Tuomala: Trends in top income shares in Nordic Countries

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Inequality and the Nordic Welfare Model Seminar 7th November 2011, THL
Trends in top income shares in Nordic Countries
Matti Tuomala

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Matti Tuomala: Trends in top income shares in Nordic Countries

  1. 1. Trends in top income shares in Nordic Countries Matti Tuomala 7.11.2011• A U-shape pattern over 1966-2004(-9) in top income shares in Finland,Norway, Sweden• But not in Denmark.
  2. 2. Top income (pre tax) shares (1%) in Nordic Countries 1945-2004(9) Top 1% Income shares in Nordic countries 18 16 14 12 top 1 % income shares Finland 10 Norway Sweden 8 Denmark 6 4 2 0 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 years
  3. 3. Seeking explanations for increasing the top income shares• Less progressive income taxation (Atkinson, 2002, UK & Holland, Piketty- Saez, 2002, France, USA).• Changes in social norms (Galbraith, 1967, Piketty-Saez, 2002)• The winner- take-all-society, (Frank, 2000), superstar-theories (Rosen, 1981).• Fiscal manipulation; Income shifting
  4. 4. Why the U-shape pattern in Nordic countries? Income shifting• In the 1990s Norway, Sweden and Finland adopted the so-called dual income tax system (DIT) but not Denmark.• The DIT limited progressivity to the taxation of labour income, while capital income was taxed at the flat rate , equal to the rate of corporate income tax.• Introduced a substantial gap between the marginal tax rates on capital and high labour income.
  5. 5. The role of DIT• The major weakness of the DIT is that the individual burden of the tax is lower, the higher is the share of capital income in the individual’s total income.• This is not only unfair from the viewpoint of distributive justice.• It also encourages unproductive rent- seeking activities as individuals devote time and expenditure to find ways to convert labour income into capital income.
  6. 6. DIT: Income shifting• The 1993 tax reform led to an increasing trend of the share of capital income (dividends) and declining share of entrepreneurial income.• This can be interpreted as an indication of a tax-induced shift in organizational form and the choice of tax regime.• Pirttilä-Selin (2010) also provide econometric evidence for income shifting
  7. 7. Marginal tax rate and gross income items for top 1 % in 1987-2009 in Finland (Riihelä et al) 100 80 90 70 80 60 70 Marginal tax rates, % Income shares, % 50 60 50 40 40 30 30 20 20 10 10 0 0 Wages Entrepreneurial income Capital income Transfers received Marginal tax rate
  8. 8. Marginal tax rates and income shares for top 1 %in Finland (Riihelä et al) 90 12 80 10 Share of taxable income, % 70 Marginal tax rate, % 60 8 50 6 40 30 4 20 Marginal tax rate from taxable income Total marginal tax rate 2 10 Share of top 1 % from taxable income 0 0 1975 1980 1985 1990 1995 2000 2005 2010
  9. 9. Marginal tax rate for top 1 and top 90–99 per cent 60Marginal tax rate, % 50 Top 90-99 % Top 1 % 40 30 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
  10. 10. Real average disposable income in desiles, top 5 and 1 %, in 1990-2009 in Finland (Riihelä et al) 160000 140000 120000 1.decile 100000 2.decile Eur 80000 9.decile 60000 10.decile Top 1% 40000 Total 20000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1990 1991 1992 1993
  11. 11. Real median and mean disposable income in 1987-2009 in Finland Median 160000 Mean and median160000140000 140000120000 120000 Top 1 per cent, mean100000 100000 Top 1 per cent Top 1 per80000 80000 cent, median60000 60000 90-99 per cent40000 40000 9th decile Total, mean20000 Total and median 20000 1st decile 1st decile 0 0 median and 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 mean
  12. 12. What is equitable growth?• Equitable growth is economic growth that is widely and fairly distributed so that it benefits all: “a tide that lifts all boats.”• Virtually all western countries experienced strong and yet equitable growth in the decades following WW II.• Growth and equity can go hand-in-hand.• Since the 1970s, growth has slowed down in most Western countries and has become much less equitable especially in English-speaking countries such as the United States.• So we can interpret the claim of the Occupy Wall Street protesters that “We are the 99 percent” as a call for action in a democracy.
  13. 13. What is equitable growth?• For example, in Finland , the top one percent captured about one fifth (18%) of disposable income growth between 1993- 2000• Is this equitable economic growth?

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