Intertemporal income shifting and the taxation of business owner-managers

Miller, Helen, Pope, Thomas and Smith, Kate ORCID: 0000-0003-3229-0439 (2024) Intertemporal income shifting and the taxation of business owner-managers. Review of Economics and Statistics, 106 (1). pp. 184-201. ISSN 0034-6535

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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.

Item Type:	Article
Additional Information:	© 2024 The Author(s)
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HA Statistics
JEL classification:	H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
Date Deposited:	05 Feb 2024 14:39
Last Modified:	07 Mar 2024 00:16
URI:	http://eprints.lse.ac.uk/id/eprint/121654

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