Tax bunching by owners of small corporations

We study the options for income shifting by owners of small corporations in the Netherlands using bunching techniques on individual tax records over the period 2007-2011. We find that the distribution of gross labour income strongly peaks at the minimum level of the reference wage, specified in the tax code. Next, taxable labour income bunches at the cut-offs of the tax brackets. The elasticity of taxable income at the top tax cut-off ranges from 0.06 to 0.11. Distributed profits strongly responded to the temporary tax cut from 25 to 22% in 2007, which doubled tax revenues on dividends. We reconfirm the importance of intertemporal income shifting for business owners.