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Small Corporations' Income Shifting through Choice of Ownership Structure - a Norwegian Case

  • Annette Alstadsater

    ()

    (Department of Health Management and Health Economics, Faculty of Medicine, University of Oslo)

  • Knut Reidar Wangen

    ()

    (Department of Health Management and Health Economics, Faculty of Medicine, University of Oslo)

We analyze how small business owners respond to the tax-minimizing incentives inherent in the Norwegian version of the dual income tax to shift income from the personal to the corporate tax base. The corporations in our sample seem to respond to tax incentives and change their ownership structure to qualify for reduction in overall tax payments. We document substantial cohort effects end suggest that postreform corporations were better able to form tax-reducing coalitions, compared with prereform corporations. It also appears that corporations who participate in this activity are more profitable and have more to gain from tax-minimizing income shifting.

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Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 23 (2010)
Issue (Month): 2 (Autumn)
Pages: 73-87

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Handle: RePEc:fep:journl:v:23:y:2010:i:2:p:73-87
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  1. Roger H. Gordon & Jeffrey K. MacKie--Mason, 1994. "Tax Distortions to the Choice of Organizational Form," Public Economics 9401004, EconWPA, revised 18 Jan 1994.
  2. 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.
  3. Thor O. Thoresen & Annette Alstadsæter, 2008. "Shifts in organizational form under a dual income tax system," Discussion Papers 529, Research Department of Statistics Norway.
  4. Jeffrey K. MacKie-Mason & Roger H. Gordon, 1994. "How Much Do Taxes Discourage Incorporation?," Public Economics 9401002, EconWPA.
  5. Seppo Kari & Hanna Karikallio & Jukka Pirttilä, 2009. "The Impact of Dividend Taxation on Dividends and Investment: New Evidence Based on a Natural Experiment," CESifo Working Paper Series 2756, CESifo Group Munich.
  6. Gentry, William M., 1994. "Taxes, financial decisions and organizational form : Evidence from publicly traded partnerships," Journal of Public Economics, Elsevier, vol. 53(2), pages 223-244, February.
  7. Erik Fjaerli & Diderik Lund, 2001. "The choice between owner's wages and dividends under the dual income tax," Finnish Economic Papers, Finnish Economic Association, vol. 14(2), pages 104-119, Autumn.
  8. Seppo Kari & Hanna Karikallio & Jukka Pirttilä, 2008. "Anticipating Tax Change: Evidence from the Finnish Corporate Income Tax Reform of 2005," CESifo Working Paper Series 2201, CESifo Group Munich.
  9. Romanov, Dmitri, 2006. "The corporation as a tax shelter: Evidence from recent Israeli tax changes," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1939-1954, November.
  10. Peter Egger & Christian Keuschnigg & Hannes Winner, 2009. "Incorporation and Taxation: Theory and Firm-level Evidence," CESifo Working Paper Series 2685, CESifo Group Munich.
  11. Harri Hietala & Seppo Kari, 2006. "Investment Incentives in Closely Held Corporations and Finland's 2005 Tax Reform," Finnish Economic Papers, Finnish Economic Association, vol. 19(2), pages 41-47, Autumn.
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