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%.
|Name||CentER Discussion Paper|
- income shifting
- corporate income tax
- personal income tax