Swedish Capital Income Taxation (1862–2013)

Taxation affects many economic decisions, including those related to labor supply, household savings, corporate investment, and entrepreneurial activity. In this chapter, we study the incentives provided by capital income taxation to invest. Capital income taxation affects the incentives to invest through its effect on the cost of capital, that is, the minimum rate of return that an investment must yield before taxes to provide the saver with the same net of tax return that (s)he would receive from lending at the market interest rate. Investment projects worth pursuing require that the profitability is higher than the cost of capital. The total effect of capital income taxation depends on the system of corporate taxation, personal income taxation, and wealth taxation, in addition to the interaction between these taxes and inflation. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.