Work

Intertemporal Income Shifting and the Taxation of Business Owner-Managers

Year: 2022

Type: article

Abstract: We use newly linked tax records to show that the large responses of UK company owner-managers to personal taxes are due to intertemporal income shifting and not to reductions in real business activity. Around half of this shifting is short-term and helps prevent volatile incomes being taxed more heavily under progressive personal taxes. The remainder reflects systemic profit retention over long periods to take advantage of lower tax rates, including preferential treatment of capital gains. We find no evidence that this tax-induced retention increases business investment. It does, however, substantially reduce the tax revenue raised from high income business owners.

Source: The Review of Economics and Statistics

DOI: 10.1162/rest_a_01166

Authors: Helen Miller, Thomas Pope, Kate Smith

Institutions: Institute for Fiscal Studies, Institute for Government, University College London

Language: English

Topic: Corporate Taxation and Avoidance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Funder: Economic and Social Research Council