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Shifts in Organizational Form under a Dual Income Tax System

  • Thor Olav Thoresen
  • Annette Alstadsæter

Evidence of owners of small businesses engaging in tax motivated shifts in organizational form is scarce. The main reason is lack of micro data enabling us to track tax-payers’ movements across organizational modes. By exploiting new panel data that combine information from several public registers, we observe Norwegian owners of small businesses and their organizational forms in the period from 1993 to 2003. Under the hypothesis that certain characteristics of the Norwegian dual income tax system encourage shifts into widely held corporations, we observe outcomes for different organizational form choices. We show that owners of small firms that became widely held corporations have higher income growth than those that remained in self-employment or as a closely held corporation.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2273.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2273
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  1. 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.
  2. Tobias Lindhe & Jan Södersten & Ann �berg, 2004. "Economic Effects of Taxing Different Organizational Forms under the Nordic Dual Income Tax," International Tax and Public Finance, Springer, vol. 11(4), pages 469-485, 08.
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  6. Jukka Pirttilä & Håkan Selin, 2006. "How Successful is the Dual Income Tax? Evidence from the Finnish Tax Reform of 1993," CESifo Working Paper Series 1875, CESifo Group Munich.
  7. Seppo Kari & Vesa Kanniainen & Jouko Ylä-Liedenpohja, 2007. "Nordic Dual Income Taxation of Entrepreneurs," Discussion Papers 415, Government Institute for Economic Research Finland (VATT).
  8. 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.
  9. Peter Sørensen, 1994. "From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries," International Tax and Public Finance, Springer, vol. 1(1), pages 57-79, February.
  10. Thor O. Thoresen, 2004. "Reduced Tax Progressivity in Norway in the Nineties: The Effect from Tax Changes," International Tax and Public Finance, Springer, vol. 11(4), pages 487-506, 08.
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  12. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  13. Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, vol. 69(1), pages 143-152, July.
  14. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
  15. Annette Alstadsæter, 2006. "The Achilles Heel of the Dual Income Tax. The Norwegian Case," Discussion Papers 474, Statistics Norway, Research Department.
  16. Mackie-Mason, Jeffrey K & Gordon, Roger H, 1997. " How Much Do Taxes Discourage Incorporation?," Journal of Finance, American Finance Association, vol. 52(2), pages 477-505, June.
  17. Robin Boadway, 2004. "The Dual Income Tax System - An Overview," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 2(3), pages 03-08, October.
  18. Jane G. Gravelle & Laurence J. Kotlikoff, 1987. "The Incidence and Efficiency Costs of Corporate Taxation when Corporate and Noncorporate Firms Produce the Same Good," NBER Working Papers 2462, National Bureau of Economic Research, Inc.
  19. Annette Alstadsæter & Knut Reidar Wangen, 2008. "Corporations’ Choice of Tax Regime when Transition Costs are Small and Income Shifting Potential is Large," CESifo Working Paper Series 2392, CESifo Group Munich.
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  24. Roger H. Gordon & Joel Slemrod, 1998. "Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?," NBER Working Papers 6576, National Bureau of Economic Research, Inc.
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