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The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany

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The United Kingdom This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The Taxation of Income from Capital: A Comparative Study of the United States, the United Kingdom, Sweden, and Germany Volume Author/Editor: Mervyn A. King and Don Fullerton, eds. Volume Publisher: University of Chicago Press Volume ISBN: 0-226-43630-6 Volume URL: http://www.nber.org/books/king84-1 Publication Date: 1984 Chapter Title: The United Kingdom Chapter Author: Mervyn A. King, Don Fullerton Chapter URL: http://www.nber.org/chapters/c11496 Chapter pages in book: (p. 31 - 86) The United Kingdom 3.1 Introduction Income tax was first introduced to Britain during the Napoleonic Wars, but it became a permanent feature of the tax system only in 1842. Although there has been an increase both in tax rates and in the number of taxpayers, much of the administrative structure of the system has remained unchanged. This superficial continuity, however, masks far- reaching changes in the economic effects of the tax system, especially since the Second World War. Many of these changes concern the taxation of income from capital. A government with an overall parliamentary majority finds it easy to alter both the structure and the rates of tax. Most finance acts in recent years have contained significant innovations. Since the Second World War there have been four major reforms of corporation tax, the introduc- tion and subsequent major overhaul of a capital gains tax, a reform of capital transfer taxation, and a rapid growth in tax-exempt saving via financial intermediaries (such as pension funds and life insurance com- panies). One of the principal motives for these changes was a desire to increase the incentives to save and invest, in an effort to raise the growth rate of industrial productivity. From a situation in which the tax system could be said to approximate a tax on economic income, Britain has moved over the past thirty years

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