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The dual income tax and firms’ income shifting through the choice of organizational form and real capital investments

Alstadsæter, Annette
Working paper
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URI
http://hdl.handle.net/11250/162852
Date
2003-07
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  • Discussion papers (SAM) [638]
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.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2003:10

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