Inflexibility in Income Shifting: Implications, Detection and Remedies

30 Pages Posted: 1 Nov 2021

See all articles by Arnt Hopland

Arnt Hopland

Norwegian School of Economics (NHH) - Department of Business and Management Science

Mohammed Mardan

Norwegian Center for Taxation; Norwegian School of Economics (NHH) - Department of Business and Management Science; CESifo (Center for Economic Studies and Ifo Institute)

Petro Lisowsky

Boston University Questrom School of Business; Norwegian Center for Taxation

Dirk Schindler

Erasmus School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 2021

Abstract

This study develops theory and discusses implications of inflexibility in tax-motivated income shifting. We show that inflexibility to adjust income-shifting strategies within a tax year in response to losses implies that income-shifting incentives are based on the expected rather than the statutory tax rate differential. This has important implications for empirical research as our finding suggests that using the statutory tax rate differential risks underestimating the tax sensitivity of income shifting. We propose several empirical remedies to mitigate the estimation bias stemming from inflexibility, whenever a direct test is not feasible. The remedies vary in their data requirements, which allows future work on tax sensitivities of income to take into account inflexibility.

Keywords: income shifting, losses, debt shifting, transfer prices

JEL Classification: F230, H250, H870

Suggested Citation

Hopland, Arnt Ove and Mardan, Mohammed and Mardan, Mohammed and Lisowsky, Petro and Schindler, Dirk, Inflexibility in Income Shifting: Implications, Detection and Remedies (2021). CESifo Working Paper No. 9384, Available at SSRN: https://ssrn.com/abstract=3953020 or http://dx.doi.org/10.2139/ssrn.3953020

Arnt Ove Hopland (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Norway

Mohammed Mardan

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

HOME PAGE: http://sites.google.com/site/webpagemohammedmardan/

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045
Norway

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Petro Lisowsky

Boston University Questrom School of Business ( email )

595 Commonwealth Avenue
Ste. 518H
Boston, MA 02215
United States
6173532661 (Phone)

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045
Norway

Dirk Schindler

Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
19
Abstract Views
166
PlumX Metrics