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Dividend taxes and income shifting

  • Alstadsæter, Annette
  • Jacob, Martin

This paper analyzes whether a dividend tax cut for owner-managers of closely held corporations encourages income shifting, income generation, or both. We use rich, micro data from Sweden for the period 2000 - 2011 comprising the entire Swedish population, as well as firmand individual-level data for all owner-managers in closely held corporations, partnerships, and self-employed. We find robust evidence of extensive income shifting across tax bases in response to the 2006 dividend tax cut. Relative to owners of unincorporated businesses, owner-managers of closely held corporations do not increase total income. Instead, they relabel earned income as dividend income. The income shifting effect is stronger for owner-managers with tax incentives and with easier access to income shifting through a high ownership share.

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File URL: http://econstor.eu/bitstream/10419/95958/1/782282393.pdf
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Paper provided by arqus - Arbeitskreis Quantitative Steuerlehre in its series arqus Discussion Papers in Quantitative Tax Research with number 154.

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Date of creation: 2014
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Handle: RePEc:zbw:arqudp:154
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  1. Slemrod, Joel, 1995. "Income Creation or Income Shifting? Behavioral Responses to the Tax Reform Act of 1986," American Economic Review, American Economic Association, vol. 85(2), pages 175-80, May.
  2. Jacob, Martin & Alstadsæter, Annette, 2013. "Payout policies of privately held firms: Flexibility and the role of income taxes," arqus Discussion Papers in Quantitative Tax Research 152, arqus - Arbeitskreis Quantitative Steuerlehre.
  3. Daniel le Maire & Bertel Schjerningo, 2012. "Tax Bunching, Income Shifting and Self-employment," EPRU Working Paper Series 2012-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Mikael Apel & Jan Södersten, 1999. "Personal Taxation and Investment Incentives in a Small Open Economy," International Tax and Public Finance, Springer, vol. 6(1), pages 79-88, February.
  5. Södersten, Jan & Lindhe, Tobias, 2010. "The Norwegian Shareholder Tax Reconsidered," Working Paper Series, Center for Fiscal Studies 2010:4, Uppsala University, Department of Economics.
  6. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1027-1043, June.
  7. Jukka Pirttilä & Håkan Selin, 2011. "Income Shifting within a Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 120-144, 03.
  8. Feldstein, Martin S, 1970. "Corporate Taxation and Dividend Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 37(1), pages 57-72, January.
  9. 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.
  10. Becker, Bo & Jacob, Marcus & Jacob, Martin, 2013. "Payout taxes and the allocation of investment," Journal of Financial Economics, Elsevier, vol. 107(1), pages 1-24.
  11. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
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