Income Shifting and Organizational Form Choice: Evidence from Europe

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Abstract

We study the effect of differential taxation of personal and corporate tax bases on income shifting for 24 European countries over the pe- riod 2000-2016. The data cover 48 sectors at the 2-digit industry level. Our results provide evidence of significant income shifting via legal form choice. Specifically, a 1%-point increase in the tax differential between personal and corporate income tax rates results in a 0.8% increase in the corporate share of active firms and a 0.3% increase in the corporate share of employment. Moreover, we find that personal income tax revenues paid by self-employed decrease by about 0.3%.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages39
Volume2020-013
Publication statusPublished - 15 Apr 2020

Publication series

NameCentER Discussion Paper
Volume2020-013

Keywords

  • income shifting
  • corporate income tax
  • personal income tax
  • incorporation

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    Lejour, A., & Massenz, G. (2020). Income Shifting and Organizational Form Choice: Evidence from Europe. (CentER Discussion Paper; Vol. 2020-013). CentER, Center for Economic Research.