Tax rate threshold for corporate taxation and incentive effects

Date of project : 2011 - 2023

The project examines the impacts of tax thresholds on companies’ intertemporal choices (investments, financing and profit distribution).


The first sub-project looks at the impacts and optimal design of the upper limit for dividend taxable as capital income (taxation of dividends from unlisted companies in Finland). The second sub-project focuses on a tax model proposed by the Mirrlees Review (2011) and currently applied by Norway (‘RRA model’), in which the part corresponding to the risk-free interest rate of the entrepreneur's capital income is tax free. One interesting feature of this regime is the possibility of transferring unused tax relief for later years. The sub-project looks at the impacts of the relief and its transferability on investments and profit distribution using a company life cycle model.  

The third sub-project focuses on the incentive effects and optimal design of investment reserve-type corporate tax relief. In particular, the question of design relates to whether the relief concerns a marginal decision or whether it reduces the tax burden of the company in general. This question is relevant to not only the scale of the investment incentive but also the tax revenue losses it causes.  The fourth sub-project looks at the impact of different types of deductions for equity capital (Allowance for Corporate Equity, ACE).

Partners: The Ministry of Finance, ETLA

Vastuututkija: Seppo Kari, [email protected], +358 295 519 419