Swedish Taxation. Developments since Edited by MAGNUS HENREKSON AND MIKAEL STENKULA

Transcription

1 Swedish Taxation

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3 Swedish Taxation Developments since 1862 Edited by MAGNUS HENREKSON AND MIKAEL STENKULA

4 SWEDISH TAXATION Copyright Magnus Henrekson and Mikael Stenkula, Softcover reprint of the hardcover 1st edition All rights reserved. First published in 2015 by PALGRAVE MACMILLAN in the United States a division of St. Martin s Press LLC, 175 Fifth Avenue, New York, NY Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN DOI / ISBN (ebook) Library of Congress Cataloging-in-Publication Data Swedish taxation : developments since 1862 / edited by Magnus Henrekson and Mikael Stenkula. pages cm Includes bibliographical references and index. 1. Taxation Sweden History. I. Henrekson, Magnus. II. Stenkula, Mikael. HJ2835.S dc A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: June

5 Contents List of Figures List of Tables Foreword About the Authors vii xi xv xvii 1 Swedish Taxation since 1862: An Introduction and Overview 1 Magnus Henrekson and Mikael Stenkula 2 Swedish Labor Income Taxation ( ) 35 Gunnar Du Rietz, Dan Johansson, and Mikael Stenkula 3 Swedish Capital Income Taxation ( ) 123 Gunnar Du Rietz, Dan Johansson, and Mikael Stenkula 4 Taxation of Goods and Services in Sweden ( ) 179 Mikael Stenkula 5 Swedish Inheritance and Gift Taxation ( ) 223 Gunnar Du Rietz, Magnus Henrekson, and Daniel Waldenström 6 Swedish Wealth Taxation ( ) 267 Gunnar Du Rietz and Magnus Henrekson 7 Taxation of Real Estate in Sweden ( ) 303 Mikael Stenkula Index 329

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7 Figures 1.1 Government expenditure as a share of GDP, (%) The tax-to-gdp ratio, (%) The composition of total tax revenues, (%) The marginal tax rates, (%) The marginal employer-paid SSCs, (%) The marginal tax wedges, (%) The marginal effective tax rate on capital income (METR) for an investment financed with new share issues, retained earnings, and debt, (%) Composition of consumption tax revenue as a percentage of total tax revenue, (%) Direct and total inheritance tax: large firm, (% of firm equity) Direct wealth tax rate for an owner of a large firm, (% of firm equity) Summary of taxes affecting the marginal tax wedge on labor income, State marginal income tax rates, (%) Local marginal income tax rates, (%) Marginal employee-paid SSCs, (%) Marginal tax rates, (%) Marginal employer-paid SSCs, (%) Marginal tax wedges on labor income, (%) a The top marginal tax wedge and the relative top tax income threshold, b The top marginal tax wedge and the relative top tax income threshold, c The top marginal tax wedge and the relative top tax income threshold, Marginal tax wedges on labor income, including consumption taxes, (%) Marginal tax wedge, given different assumptions, for the average-income earner, (%) Marginal tax wedge for married and unmarried average-income earners, (%) 66

8 viii Figures 2.12 Marginal tax wedge for married with working spouse and unmarried average-income earners, (%) Marginal tax wedge, second income earner married to top income earner, (%) The highest and lowest statutory marginal corporate tax rate and the statutory marginal corporate tax rate used in our calculations of the METR, (%) The marginal tax rate on interest income, (%) The marginal tax rate on dividends, (%) The marginal tax rate on long-term capital gains, (%) Highest and lowest marginal wealth tax rate and the marginal wealth tax rate used in our calculations, (%) The inflation rate, (%) The METR for an investment financed by new share issues, retained earnings, and debt for an average production worker, (%) The METR for an investment financed by new share issues, retained earnings, and debt for an individual facing the top marginal income tax rate, (%) The METR for an investment financed by new share issues, retained earnings, and debt for an individual earning 0.67 APW, (%) The present discounted value of tax savings from depreciation allowances and other grants (A) given an initial cost of one unit The METR for an investment financed by new share issues, retained earnings, and debt for an average production worker, including effects from the IF system, (%) The METR, corporate taxes only (corporate METR) (%) Consumption tax revenue as a percentage of state tax revenue and total tax revenue, Consumption tax revenue as a percentage of GDP, Composition of consumption tax revenue as a percentage of state tax revenue, Composition of consumption tax revenue as a percentage of total tax revenue, Customs duties as a percentage of GDP, Specific consumption taxes as a percentage of state tax revenue, Specific consumption taxes as a percentage of GDP, General consumption taxes as a percentage of GDP, Inheritance, estate, and gift tax revenue in Sweden, (% of GDP) Inheritance, and gift tax revenue as a share of total taxes and gift taxes as a share of inheritance and gift taxes, (%) Direct and total inheritance tax: large firm, percent of equity 251

9 Figures ix 5.4 Direct and total inheritance tax: medium-sized firm, percent of equity D irect and total inheritance tax: small firm, percent of equity Direct and total inheritance tax as a percentage of pretax inheritance: non-corporate assets equivalent to the large firm Direct and total inheritance tax as a percentage of pretax inheritance: non-corporate assets equivalent to the medium-sized firm Direct and total inheritance tax as a percentage of pretax inheritance: non-corporate assets equivalent to the small firm Direct inheritance tax as a percentage of total wealth for a person of average wealth Taxable limits ( ) and basic exemptions ( ) for descendants expressed as a share of the average annual wage of a production worker Wealth tax revenue as a share of total central government tax revenue and as a share of GDP, (%) Marginal tax rates at different levels of income, (%) Wealth tax rate for an owner of a large firm, (% of firm equity) Wealth tax rate for an owner of a medium-sized firm, (% of firm equity) Wealth tax rate for an owner of a small firm, (% of firm equity) Direct and total wealth tax for an owner of a large firm, (% of firm equity) when no reduction rules apply Direct and total wealth tax for an owner of a large firm, (% of firm equity) when reduction rules apply Direct and total wealth tax for an owner of a medium-sized firm, (% of firm equity) when no reduction rules apply Direct and total wealth tax for an owner of a medium-sized firm, (% of firm equity) when reduction rules apply Direct and total wealth tax for an owner of a small firm, (% of firm equity) Wealth tax rate for an individual having wealth equal to the large-firm owner, (%) Wealth tax rate for an individual having wealth equal to the medium-sized firm owner, (%) Effective wealth tax rate for an individual having wealth equal to the small-firm owner, (%) The state real estate tax, (%) 317

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11 Tables 1.1 Different types of taxes with an impact on the agents needed to build a successful firm Marginal tax rates and marginal tax wedges, Top marginal tax rates, top marginal tax wedges, and relative top tax income, The local tax rate and the consumption tax rate, The state marginal income tax rate (appropriation tax), Extra temporary appropriation tax, The state marginal income tax rate (appropriation tax), The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, The state marginal income tax rate, Defense taxes, 1913, Defense surtax, Defense taxes during World War II, The local progressive income tax (den kommunala progressivskatten), The state equalization tax (den statliga utjämningsskatten), The extra state income tax (den statliga extra inkomstskatten), The basic state and local allowances, Basic state income allowances, Basic state income allowances, Basic local and state income tax allowances, Basic local and state income tax allowances, Basic local and state income tax allowances,

12 xii Tables 2.31 Basic local and state income tax allowances, Basic local and state income tax allowances, Basic local and state income tax allowances, Basic local and state income tax allowances, Basic local and state income tax allowances, Basic local and state income tax allowances, Basic local and state income tax allowances, National basic pension contribution, National basic pension contribution, National basic pension contribution, Health insurance fee, Health insurance fee, Health insurance fee, Health insurance fee, General employee-paid social security contributions, Tax credits, Earned income tax credit, Earned income tax credit, Earned income tax credit, Earned income tax credit, Employer-paid social security contributions, Taxable share of capital gains Tax allowances in different time periods The state marginal tax rate (appropriation tax), Temporary appropriation tax The state marginal tax rate, The state income tax rate, The state income tax rate, The state marginal tax rate, The state marginal tax rate, The local corporate tax rate, The local progressive income tax, The local progressive income tax, The state equalization tax, The state equalization tax, The defense tax in The defense tax in The defense tax during World War II Marginal personal tax rate on interest income, Marginal personal tax rate on dividends, Effective accrued capital gains tax for an average production worker, (long-term possession) Marginal effective tax rate (METR) on capital income, Sales tax rates and value added tax rates, Differentiated value added tax rates (%) 190

13 Tables xiii 4.3 Customs duties, specific consumption taxes, and general consumption taxes, percent of state tax revenue Customs duties, specific consumption taxes, and general consumption taxes, percent of total tax revenue Customs duties, specific consumption taxes, and general consumption taxes, percent of GDP Specific consumption taxes, percent of state tax revenue Specific consumption taxes, percent of total tax revenue Specific consumption taxes, percent of GDP Inheritance tax schedule, Inheritance tax schedules, Inheritance tax schedules for Classes I II, , and Class III, Inheritance tax schedule for Classes III IV, Inheritance tax schedules, Inheritance tax schedules, Estate tax schedules, Inheritance tax schedules, Inheritance tax schedules, Inheritance tax schedules, Inheritance and gift tax schedules, Inheritance and gift tax schedules, Inheritance and gift tax schedules, Taxable share of capital gains on stock holdings, Swedish consumer price index, (1884 = 100) Taxable limits ( ) and basic exemptions ( ) for children in nominal and real terms, The combined state income and wealth tax, The 1913 defense tax and the extra income and wealth taxes of The defense surtax, The combined income and wealth tax, The local progressive income tax (den kommunala progressivskatten), The local progressive income tax (den kommunala progressivskatten), The state equalization tax (statliga utjämningsskatten), The state equalization tax (statliga utjämningsskatten), State extra income and wealth tax, State extra income and wealth tax, The 1938 income and wealth tax, The 1939 defense tax The 1940 defense tax The defense tax, The 1934 separate tax on wealth,

14 xiv Tables 6.16 The 1938 separate tax on wealth, The 1947 wealth tax, The 1953 wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, Wealth tax, The local guaranteed tax system, (%) Imputed rent on owner-occupied houses (villaschablonen), (%) Imputed rent on owner-occupied houses (villaschablonen), The state real estate tax, The state real estate tax, (%) Local real estate fee, (SEK) The most important tax reforms for real estate Basic tax Estimated importance of real estate income tax, state level Estimated importance of real estate income tax, local level Real estate tax at the local level (unadjusted figures) Real estate tax at the local level (adjusted figures) and the importance of the local real estate tax during the guaranteed tax system The state real estate tax and local real estate fee Tax subsidies on owner-occupied housing Estimated tax reductions due to interest expenses on household mortgage loans (billion) Stamp duty 321

15 Foreword The results presented in this volume are based on a project conducted at the Research Institute of Industrial Economics (IFN), intended to analyze the long-term evolution of the Swedish tax system. Over the last five years, we, the editors of this volume, have directed and coordinated this comprehensive project. The project has a long history. It began on a small scale in 2002 at the Ratio Institute in Stockholm, and was originally initiated by one of the coauthors of two of the studies in this volume Dan Johansson (at that time, Vice-President of the Ratio Institute, currently professor of economics at Örebro University School of Business). The project expanded in scope and ambition over time. The initial idea to describe the post-war evolution of statutory labor income tax rates for three income categories was soon abandoned to provide a more thorough and complete analysis of the labor income tax system and to go as far back in time as deemed reasonable and possible. While analyzing labor income taxation, the evolution of capital income taxation caught our attention as complementary to the analyses of the evolution of the income tax system. Additionally, to trace the evolution of capital income taxation, an analysis of wealth taxation was required. At this point, the original project had grown so much that it seemed feasible and worthwhile to describe the entire Swedish tax system from 1862 to the present. However, this endeavor became far more difficult, exacting, and time consuming than we imagined. As the level of ambition increased, we continually encountered new difficulties and detected previously overlooked details. The completed volume is based on extensive archival and published documentation. We hope that the reader finds that this documentation has been complemented by clearly presented, skillful analyses in the seven chapters constituting this volume. We have not documented every detail of the tax system, which would be practically impossible. Moreover, including every element would be counterproductive because the documentation would be burdened with so much detail that it would be difficult for other scholars to use. In fact, one important aspect of the documentation and analysis presented here is that the records are restricted to details that are substantively most important. We currently have far more detail than ever before concerning the annual basis of tax rates and the definitions of the relevant tax bases for a uniquely long period of time 152 years in a single country. This volume comprises six studies that examine the development of taxation in Sweden from 1862 to This examination includes the following six key aspects of the Swedish tax system: the taxation of labor income, capital income, consumption, inheritance and gifts, wealth, and real estate. Each aspect has been thoroughly

16 xvi Foreword analyzed in separate chapters. The chapters regarding the taxation of inheritance and gifts and wealth have an entrepreneurial perspective, and analyze how small, medium, and large firms were affected. The chapters concerning labor income, capital income, goods and services, and inheritance and gifts, also contain extensive appendices that include all relevant tax schedules for the period examined, making it possible for the reader to perform his or her own calculation and analysis. This data is unique in its consistency, thoroughness, breadth, and the timespan covered. The data in all tables and figures can be downloaded at The importance of different types of taxes varied greatly over time, and Sweden increasingly relied on broad-based taxes (such as income and general consumption taxes) and taxes that were less visible to the public (such as payroll taxes and social security contributions). The tax-to-gdp ratio was initially low and relatively stable, but beginning in the 1930s, the ratio increased sharply for half a century. Near the end of this period, the tax-to-gdp ratio declined significantly. This project would not have been possible without the help of Gunnar Du Rietz, coauthor of four of the six studies. After receiving his PhD in 1979, Gunnar Du Rietz worked as a tax expert for more than 20 years at SAF (Svenska Arbetsgivareföreningen, the predecessor of the Confederation of Swedish Enterprise). Gunnar Du Rietz s detailed knowledge regarding the historical tax system has been valuable. We must also mention Lars-Olof Jacobsson, who assisted Gunnar Du Rietz with several painstaking calculations. We are grateful for the useful comments and suggestions from Krister Andersson, Stig von Bahr, Niclas Berggren, Karin Edmark, Anders Gustafsson, Gunnar Johansson, Hans-Peter Larsson, Hans Lind, Henrik Lindberg, Sven-Olof Lodin, Stellan Lundström, Erik Norrman, Enrique Rodriguez, Hans Sjögren, Jan Södersten, Niclas Virin, and Hans Westerberg. The editors and publisher wish to thank the authors and publishers who have kindly given permission to use copyrighted material from the following articles: Mikael Stenkula, Dan Johansson, and Gunnar Du Rietz (2014), Marginal Taxation on Labour Income in Sweden from 1862 to 2010, Scandinavian Economic History Review 62(2), ; Dan Johansson, Mikael Stenkula, and Gunnar Du Rietz (2015), Capital Income Taxation of Swedish Households, 1862 to 2010, Scandinavian Economic History Review 63(2), forthcoming; Magnus Henrekson and Gunnar Du Rietz (2014), The Rise and Fall of Swedish Wealth Taxation, Nordic Tax Journal 1(1), 9 35; and Mikael Stenkula (2014), Swedish Taxation in a 150- Year Perspective, Nordic Tax Journal 1(2), Taylor & Francis is the publisher of the Scandinavian Economic History Review, and Djøf Publishing (Copenhagen, Denmark) is the publisher of the Nordic Tax Journal. We gratefully acknowledge financial support from the Jan Wallander and Tom Hedelius Research Foundation, the Marianne and Marcus Wallenberg Foundation, Jacob Wallenbergs Stiftelse, Finanspolitiska Forskningsstiftelsen, and the Ragnar Söderberg Foundation. Stockholm, April 2015 Magnus Henrekson and Mikael Stenkula

17 About the Authors Editors Magnus Henrekson is a professor of economics and President of the Research Institute of Industrial Economics, IFN, in Stockholm, Sweden. Until 2009, he was Jacob Wallenberg Professor at the Department of Economics, Stockholm School of Economics. Magnus Henrekson s research is empirically oriented. Since the end of the 1990s, he has mostly conducted research in the area of entrepreneurship economics, notably, the institutional determinants of the business climate. Magnus Henrekson has published extensively both in international scientific journals and in Sweden in the form of books, government-commissioned reports, and essays. Mikael Stenkula is a research fellow at the Research Institute of Industrial Economics, IFN, in Stockholm, Sweden. He received a PhD in economics from Lund University. Mikael Stenkula s research is focused on entrepreneurship, business structures, and taxation. He has published numerous articles and contributions to collective volumes. Mikael Stenkula has also co-authored a textbook on entrepreneurship economics with Magnus Henrekson. Contributors Gunnar Du Rietz is a research affiliate at the Research Institute of Industrial Economics, IFN, in Stockholm, Sweden. He received a PhD in Economics in 1979 from the Stockholm School of Economics. Gunnar Du Rietz s main areas of research are taxation and entrepreneurship in Swedish industry. For more than two decades, he was head of tax analysis at the Confederation of Swedish Enterprise. Dan Johansson is a professor of economics at Örebro University School of Business, Örebro, Sweden and a research fellow at HUI Research, Stockholm, Sweden. His research concerns entrepreneurship, institutions, and firm growth. Dan Johansson has a particular interest in how the economic function of the entrepreneur is defined in different theoretical traditions and the policy implications that follow from these definitions. He also studies whether some firms for example,

18 xviii About the Authors new, small, or family firms are more important for generating employment and economic growth and what national institutions promote entrepreneurship, innovation, and competitive firms. Dan Johansson has published extensively both in international scientific journals and in Sweden in the form of books and reports. Daniel Waldenström is a professor of economics at the Department of Economics, Uppsala University, in Uppsala, Sweden. He is also affiliated to the Research Institute of Industrial Economics, IFN. He received a PhD in economics from the Stockholm School of Economics and a PhD in economic history from Lund University. Daniel Waldenström s main research interests concern income and wealth inequality, intergenerational mobility, and long-term trends in inequality and taxation.