Business Owners and Income-Shifting between Tax Bases: Empirical Evidence from a Finnish Tax Reform

Jarkko Harju and Tuomas Matikka

No 5090, CESifo Working Paper Series from CESifo

Abstract: This study examines the extent of income-shifting between tax bases among the owners of privately held businesses. The dual income tax system in Finland offers noticeable incentives for income-shifting between wages and dividends for business owners. The dividend tax reform of 2005 enables us to study how this particular form of tax avoidance reacts to an exogenous change in tax rates. Our results support highly active income-shifting behavior. We find that the income-shifting effect is homogeneous across different owners and firms. However, we find that the size of the tax incentive affects the size of the response, indicating that costs related to income-shifting are important.

Keywords: business owners; income-shifting; income taxation (search for similar items in EconPapers)
JEL-codes: H24 H25 H32 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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