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Tax Bunching by Owners of Small Corporations

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

De Economist, 2017, vol. 165, issue 4, 411-438

Abstract: Abstract We study the options for income shifting by owners of small corporations in the Netherlands using bunching techniques on individual tax records over the period 2007–2011. We find that the distribution of gross labour income strongly peaks at the minimum level of the reference wage, specified in the tax code. Next, 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. Distributed profits strongly responded to the temporary tax cut from 25 to 22% in 2007, which doubled tax revenues on dividends. We reconfirm the importance of intertemporal income shifting for business owners.

Keywords: Bunching; Small corporations; Taxable income; Income shifting (search for similar items in EconPapers)
JEL-codes: H25 H26 H32 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s10645-017-9303-x

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