The choice between owner's wages and dividends under the dual income tax

Abstract

Tax-motivated shifting of income between different tax bases erodes tax revenues, confuses income statistics, and makes the effects of tax reforms unpredictable. Few studies have been able to use micro data to investigate this phenomenon. Using a rather unique data set, this study shows that the choice of type of payout from corporations to owners is strongly, but not uniquely, motivated by taxes. There are indications that the personal tax system is more clearly perceived by the owners than is the system of corporate taxes and regulations, and that own wage payments are motivated by rights to social security benefits.