The Dual Income Tax and Firms' Income Shifting Through the Choice of Organizational Form and Real Capital Investments

The dual income tax provides the self-employed entrepreneur with huge incentives to participate in tax minimizing income shifting to have more of his income taxed as capital income. The Norwegian split model is designed to remove these incentives, but it contains loopholes. The present paper concludes that the split model induces the self-employed entrepreneur to over-invest in firm real capital. In addition, the corporate organizational form serves as a tax shelter for high income entrepreneurs. The higher his income and the higher the difference between the marginal tax rates on labor and capital, the larger the incentives to incorporate.

• Publication year

  2003

• Venue

  Social Science Research Network

• Publication date

  2003-08-01

• Fields of study

  Business, Economics

• Identifiers
  DOI 10.2139/ssrn.437405
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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