This paper provides evidence on the strategic use of owner-controlled firms as a means of tax avoidance under dual personal income taxation. Taxpayers with sufficiently high income levels have incentives to shift income toward corporations, as the combined tax burden of corporate and capital income taxes is lower than that of labor income taxation. We exploit linked micro-data from personal income tax returns and various other sources, leveraging multiple tax reforms in Spain that introduced variation in these incentives across taxpayers and over time. This approach allows us to causally identify the magnitude of income shifting behavior. We find significant tax-motivated responses among business owners, with a 15 percentage point increase in the likelihood of income shifting when the tax-saving incentive becomes active. Our results highlight the importance of this form of tax avoidance from both equity and efficiency perspectives.

This paper examines how capital gains tax legislation shapes business sales in Germany. Using detailed income tax data on a representative sample of German business owners, the paper documents the characteristics of sellers and analyzes their post-sale behavior. A regression discontinuity design provides evidence of a substantial jump in the number of transactions around a discontinuity in the capital gains tax rate, suggesting that lock-in effects play a significant role. Entrepreneurs with larger capital gains and worse outside options respond particularly strongly to the discontinuity. The results have implications for our understanding of how capital gains tax provisions affect entrepreneurial decisions and broader economic outcomes.

Inheritance and gift taxes can force liquidity-constrained family-owned businesses to discontinue operations due to the tax burden, making preferential tax treatment for intra-family transfers an appealing policy. However, such policies may also encourage less capable firm owners or CEOs, complicating the assessment of their overall economic benefit. This study examines the impact of a 2004 Finnish inheritance and gift tax reform, which reduced the taxable value of intra-family successions from 100% to 40%. While previous research has focused on the performance implications of family vs. external ownership transitions, little attention has been given to their effect on firm survival, particularly in the context of tax reform. Our preliminary findings suggest that family firms undergoing intra-family successions after the reform differ significantly from those before, particularly in size, industry, and CEO characteristics. We hypothesise that the reform will improve survival, though possibly at the cost of firm performance.

We assess tax and real economic implications of facilitating the option to incorporate by physicians in Canada, by exploiting the 2006 reform in Ontario which allowed family members to own shares in these businesses. The administrative tax data allows us to trace individual and businesses incomes, both corporate and unincorporated, and taxes for as many as 12 years after the reform. We use a triple-differences design, comparing the outcomes of physicians in Ontario with other high-income professionals and other provinces. The reform stimulated incorporation. Pre-tax personal income and taxes paid (aggregated at the family level) significantly decrease, while their pre-tax business income and corporate taxes substantially increase. The overall income (personal and corporate combined) increases while the average effective tax rate decreases after the reform. Taken together, these results are consistent with both tax avoidance through a corporation and real response via business expansion after incorporation.