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The Corporation As A Tax Shelter: Evidence From Recent Israeli Tax Changes

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  • Dmitri Romanov

    (Bank of Israel)

Abstract

Shifting of income between the corporate and the personal income tax bases in response to tax incentives is the premise of the literature on taxation and organizational form. Empirical evidence of income shifting is, however, merely circumstantial. Using a unique panel of highfrequency VAT data from Israel, we trace the footprints of income-shifting through incorporation by high-income individuals who convert their labor income into less-taxed dividends. A rise in the personal income tax rates resulted in more than 2,200 corporations being registered, mainly by self-employed professionals, specialists and doctors for whom tax avoidance through incorporation was feasible and, apparently, preferable to tax evasion.

Suggested Citation

  • Dmitri Romanov, 2004. "The Corporation As A Tax Shelter: Evidence From Recent Israeli Tax Changes," Bank of Israel Working Papers 2004.17, Bank of Israel.
    • Handle: RePEc:boi:wpaper:2004.17
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Income shifting; Organizational form; Tax avoidance;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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