Tax bunching by owners of small corporations

Leon Bettendorf (), Arjan Lejour and Maarten van 't Riet ()
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Leon Bettendorf: CPB Netherlands Bureau for Economic Policy Analysis
Maarten van 't Riet: CPB Netherlands Bureau for Economic Policy Analysis

No 326, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: In the Netherlands owners of small corporations face taxation of corporate, labour and capital income. Taxation of the latter may be deferred. We study their options for income shifting using bunching techniques. Based on individual tax records over the period 2007-2011 we report four main findings. The first is that the distribution of gross labour income strongly peaks at the legal 'minimum' level. Second, taxable labour income bunches at the cut-offs of the tax brackets. The elasticity of taxable income at the top tax cut-off ranges from 0.06 to 0.11. Third, we show that distributed profits strongly responded to the temporary tax cut from 25 to 22% in 2007, which doubled tax revenues on dividends. Fourth, using a Heckman selection model we find that the size of own equity has a positive effect on the probability of distributing profits and the size. We reconfirm the importance of intertemporal income shifting for business owners.

JEL-codes: E62 H24 H68 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-acc, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Tax Bunching by Owners of Small Corporations (2017)
Working Paper: Tax bunching by owners of small corporations (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:326

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