The Dual Income Tax and Firms' Income Shifting through the Choice of Organizational Form and Real Capital Investments

Annette Alstadsæter

No 1018, CESifo Working Paper Series from CESifo

Abstract: The dual income tax provides the self-employed entrepreneur with huge incentives to participate in tax minimizing income shifting to have more of his income taxed as capital income. The Norwegian split model is designed to remove these incentives, but it contains loopholes. The present paper concludes that the split model induces the self-employed entrepreneur to over-invest in firm real capital. In addition, the corporate organizational form serves as a tax shelter for high income entrepreneurs. The higher his income and the higher the difference between the marginal tax rates on labor and capital, the larger the incentives to incorporate.

JEL-codes: H24 H25 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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