Norwegian Dual Income Tax: Effects of Actors in the 2006 Tax Reform

Abstract

  Norway introduced a dual income tax system with the 1992 tax reform. However, since 1992, the dual income tax has been modified by tax reforms in 2006 and 2016. This paper focuses on the 2006 tax reform, which mainly changed the split model to improve fairness and introduced a shareholder model (shareholder income tax). The paper examines why the principle of dual income taxation was maintained in the reform, based on the chronological observation of actors’ arguments and Hacker’s policy shift. The Norwegian government attempted to shift the system from the original efficiency-oriented system of dual income taxation to an equity-oriented system. Although the status quo bias in the political environment is low, there is strong resistance to the change, and the government fails once to implement a policy that deviates from the principle of a dual income tax. Subsequently, the effects of the system are fundamentally changed through a form of reform known as “layering” without fundamental institutional change. In this way, the principle of dual income taxation was maintained without deviation.