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

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

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Alstadsaeter, Annette

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Annette Alstadsæter

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.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1018.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1018

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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

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-05-02 (All new papers)
NEP-PBE-2004-05-02 (Public Economics)

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Ruud A. de Mooij & Gaëtan Nicodème, 2008. "Corporate tax policy and incorporation in the EU," CPB Discussion Papers 97, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
Other versions:
- Ruud de Mooij & Gaetan Nicodeme, 2007. "Corporate tax policy and incorporation in the EU," Taxation Papers 11, Directorate General Taxation and Customs Union, European Commission, revised Nov 2007. [Downloadable!]
- Ruud A. de Mooij & Gaëtan Nicodème, 2007. "Corporate tax policy and incorporation in the EU," Working Papers CEB 07-016.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
- Ruud A. de Mooij & Gaëtan Nicodème, 2007. "Corporate Tax Policy and Incorporation in the EU," Working Papers 0716, Oxford University Centre for Business Taxation. [Downloadable!]
- Ruud Mooij & Gaëtan Nicodème, 2008. "Corporate tax policy and incorporation in the EU," International Tax and Public Finance, Springer, vol. 15(4), pages 478-498, August. [Downloadable!] (restricted)
Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2005. "Nordic Dual Income Taxation of Entrepreneurs," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
Other versions:
- Seppo Kari & Vesa Kanniainen & Jouko Ylä-Liedenpohja, 2007. "Nordic Dual Income Taxation of Entrepreneurs," Discussion Papers 415, Government Institute for Economic Research Finland (VATT). [Downloadable!]
- Vesa Kanniainen & Seppo Kari & Jouko Ylä-Liedenpohja, 2007. "Nordic dual income taxation of entrepreneurs," International Tax and Public Finance, Springer, vol. 14(4), pages 407-426, August. [Downloadable!] (restricted)
Seppo Kari & Hanna Karikallio, 2007. "Tax Treatment of Dividends and Capital Gains and the Dividend Decision Under Dual Income Tax," Discussion Papers 416, Government Institute for Economic Research Finland (VATT). [Downloadable!]
Other versions:
- Seppo Kari & Hanna Karikallio, 2007. "Tax treatment of dividends and capital gains and the dividend decision under dual income tax," International Tax and Public Finance, Springer, vol. 14(4), pages 427-456, August. [Downloadable!] (restricted)
Ruud de Mooij & Gaetan Nicodème, 2006. "Corporate Tax Policy, Entrepreneurship and Incorporation in the EU," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]

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