Tax Bunching, Income Shifting and Self-employment

TY - UNPB

T1 - Tax Bunching, Income Shifting and Self-employment

AU - le Maire, Christian Daniel

AU - Schjerning, Bertel

N1 - JEL-Classification: H20, J20.

PY - 2012

Y1 - 2012

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 case of Danish self-employed. If income shifting was neglected in this case, we would conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the observed bunching in taxable income for the self-employed is driven by intertemporal income shifting, implying a structural elasticity in the range 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 case of Danish self-employed. If income shifting was neglected in this case, we would conclude that taxable incomes were highly sensitive to changes in marginal tax rates. We show, however, that more than half of the observed bunching in taxable income for the self-employed is driven by intertemporal income shifting, implying a structural elasticity in the range of 0.14-0.20.

KW - Faculty of Social Sciences

KW - Self-employment,

KW - tax bunching

KW - retained profits

KW - tax avoidance

KW - income shifting

M3 - Working paper

BT - Tax Bunching, Income Shifting and Self-employment

PB - Economic Policy Research Unit. Department of Economics, University of Copenhagen

ER -