Browsing by Author "Salo, Myy"

The aim of this thesis is to enlighten, to what extent an income tax cut is self-financed in Finland. Currently, labour taxation in Finland is relatively high compared to other OECD countries. In addition, the demographic structure of Finland suggests that the same services should shortly be provided for a growing user base. Examining deadweight losses and degrees of self-financing is the building block for making political decisions and thus crucial for improving the effectiveness of taxation. This thesis revolves around the Sørensen´s model, which estimates deadweight losses from taxation and which has been applied to data for Sweden. Aside from the income tax, also tax on consumption, tax on saving and corporate tax are included in the model. In the Swedish context, Sørensen exhibits the total degree of self-financing resulting from a cut in effective marginal tax rate on labour income to be as high as 32,8%. This thesis examines the model in the Finnish case. In order to apply the model to Finland, data is obtained from Statistics Finland as well as the Finnish Ministry of Finance. The end result of this research states that the total degree of self-financing associated with an income tax cut is even larger in Finland than in Sweden, with a value of 39,27%. The thesis concludes in a comparison of the two neighbouring countries. Even though Sweden and Finland both have relatively high taxation, they differ in many aspects. Firstly, the tax base is different in Sweden as opposed to Finland. Secondly, the Swedish negotiation culture has implications on the country´s labour market. In addition, the production structure in Sweden is more diverse and the nation is wealthier in capital goods. Lastly, the calibrations were computed in different years, which affected the parameters used in the calculations. Based on the above, it is imperative that aside from the similarities, there are also vast differences between Sweden and Finland.