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Free keywords:
tax mixes; tax competition; capital taxation; path dependence; proportional representation; veto players
Abstract:
Denmark’s income tax burden as the percentage of GDP is larger than the
total tax burden of the United States, and it has increased further after 1980.
How can this be explained, given increasing tax competition and widespread
views that strong reliance on regressive taxes was conducive to building and
maintaining large tax and welfare states? The article highlights three factors:
First, large income taxes are feasible if the capital tax burden is moderated
within the income tax. Second, the effective capital income tax burden that
had developed up to the early 1980s was extremely low so that subsequent
tax reforms could cut marginal tax rates on mobile types of capital income
while increasing tax revenue. Third, drastic changes in the legal structure of
the income tax and stability in aggregate tax policy outcomes
