Gunnar Du Rietz

Marginal taxation on labour income in Sweden from 1862 to 2010

This paper presents annual Swedish time series data on the top marginal tax wedge and marginal tax wedges on labour income for a low-, average- and high-income earner for the period 1862–2010. These data are unique in their consistency, thoroughness and timespan covered. We identify four distinct periods separated by major tax reforms. The tax system can be depicted as proportional, with low tax wedges until the Second World War. Next follows a period featuring increasing tax wedges. During the third period, starting with the 1971 tax reform and continuing throughout the 1980s, the efforts to redistribute income culminated and tax wedges peaked. The high-income earner started to pay the top marginal tax wedge which could be as high as almost 90%. The main explanations for this development are temporary crises leading to permanent tax increases, expansion of the public sector, distributional ambitions, increased local taxes, bracket-creep and the introduction of social security contributions paid by employers. The 1990–1991 tax reform represents the beginning of a new and still continuing period with decreasing marginal tax wedges.

Swedish Wealth Taxation (1911–2007)

Modern wealth taxation was introduced in Sweden in 1911 by the 1910 Ordinance of Income and Wealth Taxation, SFS 1910:115.1 Various kinds of duties and fees on estates had existed previously, but only for small and specific parts of the tax base and population strata.2 The 1910 reform conferred an important role to the ability-to-pay principle in the Swedish income tax system, thus making it natural to take advantage of the greater ability to pay tax that possession of wealth gave the taxpayer (SOU 1969:54, 78).3 A second motive was to compensate for the erosion of other tax bases and growing government financing needs. Likewise, several types of wealth tax were introduced during and between the World Wars in order to fund the military. Finally, beginning in the early 1930s, the wealth tax was motivated as a means of redistribution (SOU 1969:54, 8–9).4

Capital income taxation of Swedish households, 1862–2010

This study describes the evolution of capital income taxation, including corporate, dividend, interest, capital gains and wealth taxation, in Sweden between 1862 and 2010. To illustrate the evolution, we present annual time-series data on the marginal effective tax rates on capital income (METR) for a marginal investment financed with new share issues, retained earnings or debt. These data are unique in their consistency, thoroughness and time span. We identify four tax regimes separated by shifts in economic policy. The first regime stretches from 1862 until the Second World War. The METR is low, stable and does not exceed 5% until the First World War, when the METR begins to drift upwards and varies depending on the source of finance. The outbreak of the Second World War establishes the second regime, when the magnitude and variation of the METR sharply increase. The METR peaks during the third regime in the 1970s and 1980s and often exceeds 100%. The 1990–1991 tax reform represents the beginning of the fourth regime, which is characterised by lower and smaller variations in the METR. The METR varies between 15% and 40% at the end of this period.

Swedish Capital Income Taxation (1862–2013)

This paper describes the evolution of capital income taxation, including corporate, dividend, interest, capital gains and wealth taxation, in Sweden between 1862 and 2010. To illustrate the evolution, we present annual time-series data on the marginal effective tax rates on capital income (METR) for a marginal investment financed with new share issues, retained earnings or debt. Tax tables covering the period are presented. These data are unique in their consistency, thoroughness and time span covered. The METR is low, is stable and does not exceed five percent until World War I, when it starts to drift somewhat upward and vary depending on the source of finance. The outbreak of World War II starts a period when the magnitude and variation of the METR sharply increases. The METR peaks during the 1970s and 1980s and often exceeds 100 percent. The 1990–1991 tax reform and lower inflation reduce the magnitude and variation of the METR. The METR varies between 15 and 40 percent at the end of the examined period.

The Rise and Fall of Swedish Wealth Taxation

Abstract We study the evolution of modern Swedish wealth taxation from its introduction in**1911 until it was abolished in 2007. The rules concerning valuation of assets, deductions/exemptions and tax schedules to characterize effective wealth tax schedules are described. These rules and schedules are used to calculate marginal and average wealth tax rates for three differently endowed owners of family firms and individual fortunes corresponding to a large, medium-sized and small firm. The overall trend in the direct wealth tax was rising until 1971 for owners of large and medium-sized firms and for individuals of equally-sized wealth consisting of non-corporate assets. Average direct wealth tax rates were low until 1934, except for 1913 when a progressive defense tax was levied. There were three major tax hikes: in 1934, when the wealth tax was more than doubled, in 1948 when tax rates were doubled again and in 1971 for owners of large firms and similarly sized non-corporate fortunes. Effective tax rates peaked in 1973 for owners of large firms and in 1983 for individuals with large non-corporate wealth. Reduction rules limited the wealth tax rates from 1934 for fortunes with high wealth/income ratios. The wealth tax on unlisted net business equity was abolished in 1991. Tax rates for wealthy individuals were decreased in 1991 and in 1992 and then remained at 0.5-1 percent through 2006, depending on whether the reduction rule was applicable. Tax rates for small-firm owners and small individual fortunes were substantially lower. Aggregate wealth tax revenues were rela-tively small; they never exceeded 0.4 percent of GDP in the postwar period and amounted to 0.16 percent of GDP in 2006.