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

35 Pages Posted: 30 Sep 2003

See all articles by Annette Alstadsæter

Annette Alstadsæter

School of Economics and Business, NMBU

Date Written: August 2003

Abstract

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.

JEL Classification: H24, H25

Suggested Citation

Alstadsaeter, Annette, The Dual Income Tax and Firms' Income Shifting Through the Choice of Organizational Form and Real Capital Investments (August 2003). Available at SSRN: https://ssrn.com/abstract=437405 or http://dx.doi.org/10.2139/ssrn.437405

Annette Alstadsaeter (Contact Author)

School of Economics and Business, NMBU ( email )

Norwegian University of Life Sciences
As
Norway

HOME PAGE: http://https://sites.google.com/view/annettealstadsater/start

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