Income Shifting and Organizational Form Choice: Evidence from Europe

Lejour, Arjan; Massenz, Gabriella

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Income Shifting and Organizational Form Choice: Evidence from Europe

CentER Discussion Paper Nr. 2020-013

39 Pages Posted: 8 May 2020

See all articles by Arjan Lejour

Arjan Lejour

Tilburg University; CPB Netherlands Bureau of Economic Policy Analysis

Gabriella Massenz

Research Institute of Industrial Economics (IFN); Tilburg University

Date Written: April 15, 2020

Abstract

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%.

Keywords: income shifting, corporate income tax, personal income tax, incorporation

JEL Classification: H25; L26

Suggested Citation: Suggested Citation

Lejour, Arjan M. and Massenz, Gabriella, Income Shifting and Organizational Form Choice: Evidence from Europe (April 15, 2020). CentER Discussion Paper Nr. 2020-013, Available at SSRN: https://ssrn.com/abstract=3576437