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Year-End Tax Planning of Top Management: Evidence from High-Frequency Payroll Data

Author

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  • Claus Thustrup Kreiner
  • S?ren Leth-Petersen
  • Peer Ebbesen Skov

Abstract

Using Danish high-frequency payroll data and tax reform variation, we detect year-end tax avoidance among top managers. Five to seven percent of top managers exploit year-end tax planning strategies to save taxes. Around 30 percent of the top managers engaging in year-end tax avoidance do so by retiming bonus payments while the rest shift regular wage income. However, bonus timing is most tax-sensitive. When considering all of the top managers receiving a December bonus, we find that more than one-quarter retime the bonus payment, whereas only 5 percent of those not receiving a bonus shift regular wage income.

Suggested Citation

  • Claus Thustrup Kreiner & S?ren Leth-Petersen & Peer Ebbesen Skov, 2014. "Year-End Tax Planning of Top Management: Evidence from High-Frequency Payroll Data," American Economic Review, American Economic Association, vol. 104(5), pages 154-158, May.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:5:p:154-58
    Note: DOI: 10.1257/aer.104.5.154
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    References listed on IDEAS

    as
    1. Claus Thustrup Kreiner & Søren Leth-Petersen & Peer Ebbesen Skov, 2016. "Tax Reforms and Intertemporal Shifting of Wage Income: Evidence from Danish Monthly Payroll Records," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 233-257, August.
    2. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
    3. Slemrod, Joel, 1995. "Income Creation or Income Shifting? Behavioral Responses to the Tax Reform Act of 1986," American Economic Review, American Economic Association, vol. 85(2), pages 175-180, May.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Claus Thustrup Kreiner & Daniel Reck & Peer Ebbesen Skov, 2020. "Do Lower Minimum Wages for Young Workers Raise Their Employment? Evidence from a Danish Discontinuity," The Review of Economics and Statistics, MIT Press, vol. 102(2), pages 339-354, May.
    2. Carina Neisser, 2021. "The Elasticity of Taxable Income: A Meta-Regression Analysis [The top 1% in international and historical perspective]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3365-3391.
    3. Joerg Paetzold, 2019. "How do taxpayers respond to a large kink? Evidence on earnings and deduction behavior from Austria," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(1), pages 167-197, February.
    4. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2017. "The elasticity of taxable income in the presence of deduction possibilities," Journal of Public Economics, Elsevier, vol. 151(C), pages 41-55.
    5. Spencer Bastani & Daniel Waldenström, 2020. "The Ability Gradient in Bunching," CESifo Working Paper Series 8233, CESifo.
    6. Johannes Hagen, 2018. "The effects of increasing the normal retirement age on health care utilization and mortality," Journal of Population Economics, Springer;European Society for Population Economics, vol. 31(1), pages 193-234, January.
    7. Jeppe Druedahl & Michael Graber & Thomas H. Jørgensen, 2021. "High Frequency Income Dynamics," CEBI working paper series 21-08, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    8. Hagen, Johannes, 2016. "What are the Health effects of postponing retirement? An instrumental variable approach," Working Paper Series 2016:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    9. Engström, Per & Nordblom, Katarina & Stefansson, Arnaldur, 2018. "Multiple Misbehaving:Loss Averse and Inattentive to Monetary Incentives," Working Papers in Economics 729, University of Gothenburg, Department of Economics.
    10. Doerrenberg, Philipp & Peichl, Andreas & Siegloch, Sebastian, 2014. "Sufficient Statistic or Not? The Elasticity of Taxable Income in the Presence of Deduction Possibilities," IZA Discussion Papers 8554, Institute of Labor Economics (IZA).
    11. Jarkko Harju & Tuomas Matikka, 2016. "The elasticity of taxable income and income-shifting: what is “real” and what is not?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 640-669, August.
    12. Vitalijs Jascisens & Anna Zasova, 2021. "Million Dollar Baby: Should Parental Benefits Depend on Wages When the Payroll Tax Evasion is Present?," SSE Riga/BICEPS Research Papers 9, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    13. Hans Schytte Sigaard, 2022. "Labor Supply Responsiveness to Tax Reforms," Economics Working Papers 2022-04, Department of Economics and Business Economics, Aarhus University.
    14. Johannes Hermle & Andreas Peichl, 2018. "Jointly Optimal Taxes for Different Types of Income," CESifo Working Paper Series 7248, CESifo.
    15. Sigaard, Hans Schytte, 2023. "Estimating labor supply responses to Danish tax reforms," Journal of Public Economics, Elsevier, vol. 224(C).
    16. Pablo Gutierrez Cubillos, 2022. "Dividend tax credits and the elasticity of taxable income: evidence from small businesses," Working Papers 630, ECINEQ, Society for the Study of Economic Inequality.

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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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