Abstract
Previous literature shows that income taxation significantly affects the behavior of high-income earners and business owners. However, it is still unclear how much of the response is due to changes in real economic activity, and how much is caused by tax avoidance. In this paper, we distinguish between real responses and income-shifting between tax bases. We show that separating income-shifting responses can largely affect the welfare analysis of income taxation. In our empirical example of Finnish business owners, we find that income-shifting accounts for a majority of the overall elasticity of taxable income, which significantly decreases the marginal excess burden.
Original language | English |
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Pages (from-to) | 640-669 |
Number of pages | 30 |
Journal | INTERNATIONAL TAX AND PUBLIC FINANCE |
Volume | 23 |
Issue number | 4 |
DOIs | |
Publication status | Published - 1 Aug 2016 |
Externally published | Yes |
Publication type | A1 Journal article-refereed |
Keywords
- Elasticity of taxable income
- Excess burden
- Income-shifting
- Real responses
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics