Tax bunching, income shifting and self-employment

Tax Bunching , Income Shifting and Self - employment

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 chan...

The Earned Income Tax Credit and Reported Self-Employment Income

The Earned Income Tax Credit subsidizes earnings from both the wage sector and the self-employment sector. This paper uses tax return data to investigate how the EITC affects the reporting of self-employment income to the IRS. A difference-in-difference strategy is used, considering three expansions in the EITC and comparing changes across filers with and without children. The expansions are pr...

Income Shifting within a Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993

Dual income tax systems can suffer from income that shifts from progressively taxed labour income to capital income, which is taxed at a lower, flat rate. This paper empirically examines the 1993 Finnish dual income tax reform, which radically reduced the marginal tax rates on capital income for some, but not all, taxpayers. We measure how overall taxable income and the relative shares of capit...

Corporate Income Tax, Legal Form of Organization, and Employment

Income Taxation and Self-Employment: The Impact of Progressivity in Countries with Tax Evasion

Recently several developing and transitional countries changed their personal income tax from fairly progressive to ‡at in an e¤ort to improve e¢ ciency. But how do taxes a¤ect incentives when people can sometimes tax evade and pay bribes? In this paper, I address this question by focusing on the e¤ects of personal income tax progressivity on the decision to become self-employed. I develop a th...