Tax Bunching, Income Shifting and Self-employment

TY - JOUR

T1 - Tax Bunching, Income Shifting and Self-employment

AU - le Maire, Christian Daniel

AU - Schjerning, Bertel

PY - 2013/11

Y1 - 2013/11

N2 - This paper proposes a dynamic extension to Saez (2010) bunching formula that allows us to distinguish bunching based on real responses and income shifting. We provide direct evidence of income shifting and pronounced bunching in taxable income for the Danish self-employed. If income shifting was neglected in this case, we would estimate a taxable income elasticity in the range of 0.43-0.53 and conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the bunching in taxable income is driven by intertemporal income shifting, implying a structural elasticity of 0.14-0.20.

AB - This paper proposes a dynamic extension to Saez (2010) bunching formula that allows us to distinguish bunching based on real responses and income shifting. We provide direct evidence of income shifting and pronounced bunching in taxable income for the Danish self-employed. If income shifting was neglected in this case, we would estimate a taxable income elasticity in the range of 0.43-0.53 and conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the bunching in taxable income is driven by intertemporal income shifting, implying a structural elasticity of 0.14-0.20.

KW - Faculty of Social Sciences

KW - Self-employment

KW - Tax bunching

KW - Retained profits

KW - Income shifting

KW - Tax avoidance

U2 - 10.1016/j.jpubeco.2013.08.002

DO - 10.1016/j.jpubeco.2013.08.002

M3 - Journal article

SN - 0047-2727

VL - 107

SP - 1

EP - 18

JO - Journal of Public Economics

JF - Journal of Public Economics

ER -