Intertemporal Income Shifting and the Taxation of Business Owner-Managers

Helen Miller, Thomas Pope and Kate Smith
Additional contact information
Helen Miller: Institute for Fiscal Studies
Thomas Pope: Institute for Government

The Review of Economics and Statistics, 2024, vol. 106, issue 1, 184-201

Abstract: We use newly linked tax records to show that the large responses of UK company owner-managers to personal taxes are due to intertemporal income shifting and not to reductions in real business activity. Around half of this shifting is short-term and helps prevent volatile incomes being taxed more heavily under progressive personal taxes. The remainder reflects systemic profit retention over long periods to take advantage of lower tax rates, including preferential treatment of capital gains. We find no evidence that this tax-induced retention increases business investment. It does, however, substantially reduce the tax revenue raised from high income business owners.

Date: 2024
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https://doi.org/10.1162/rest_a_01166

Related works:
Working Paper: Intertemporal income shifting and the taxation of business owner-managers (2024)
Working Paper: Intertemporal income shifting and the taxation of business owner-managers (2021)
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