The Achilles Heel of the Dual Income Tax: The Norwegian Case

The dual income tax provides the self-employed individual with large incentives to participate in tax minimizing income shifting. The present paper analyses the income shifting incentives under the Norwegian split model when real capital investments are risky. It concludes that high-income self-employed individuals can incorporate and use the legal form of a widely held corporation as a tax shelter. In addition, real capital investments with a low risk profile are means to shift income from the labor income tax base to the capital income tax base for the highincome self-employed.

Taxation and Dividend Policy: The Muting Effect of Diverse Ownership Structure

ABSTRACT Policymakers frequently try to use dividend tax changes to affect payout policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using identification strategy that exploits a large exogenous shock to dividend taxation and comprehensive proprietary data on ownership structure and owners' tax preference, we show that absent of conflicting objectives between managers and owners, dividend taxation has a large effect on payouts. The impact becomes insignificant as the number of owners increases. Differential tax preferences across owners is one factor. However, even when owners have the same tax preferences, disperse ownership significantly reduces the impact of dividend taxation; plausibly due to coordination problems across owners and conflicting objectives of owners and managers. Our results explain why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on payout policy, but disperse ownership mutes its impact substantially

Taxation and Dividend Policy: The Muting Effect of Diverse Ownership Structure

ABSTRACT Policymakers frequently try to use tax changes to affect payout policy. However, empirical evidence finds the effect to be much smaller than theory implies. Using a large exogenous shock to dividend taxation and comprehensive proprietary private firm data on ownership structure and owners' tax preference, we show that dividend tax sensitivity gradually decreases as the number of owners increases. Once the firm has four or more owners, the individual owner's tax preference does not shape the payout policy of the firm. We show empirically that coordination problems across owners, conflicting objectives of owners and managers as well as heterogeneous tax preferences across owners explain this decrease in tax sensitivity of payout. Our results help to understand why previous evidence on the impact of dividend taxation has been so elusive. Taxation has a first order impact on payout policy, but disperse ownership mutes its impact substantially

Tax Regimes and Capital Gains Realizations Tax Regimes and CapiTal gains RealizaTions Tax Regimes and Capital Gains Realizations *

Abstract This paper analyzes the effects of progressive versus proportional taxation on capital gains realization behavior. Using a comprehensive panel of over 230,000 individuals in Sweden for , this paper shows after progressive capital gains taxes were cut from over 80% in the 1980s to a proportional tax rate of 30% in 1991, especially high-income taxpayers increased capital gains realizations. The reaction to the introduction of the proportional capital gains tax rate is more pronounced among younger individuals. This paper also shows that under a progressive (proportional) tax regime, investors with excess income are less (more) likely to realize capital gains than individuals with liquidity constraints. Hence, proportional versus progressive taxation plays an important role in capital gains realizations of private investors