The Dual Income Tax and Firms' Income Shifting through the Choice of Organizational Form and Real Capital Investments
AbstractThe 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.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1018.
Date of creation: 2003
Date of revision:
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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