What leads self-employed entrepreneurs to incorporate? I examine how tax incentives interact with the cost of incorporation to answer this question. I exploit the abolition of minimum capital requirements to start a limited liability company in the Netherlands and compare entrepreneurs that differ in their incentive to incorporate but are otherwise comparable. After the reform, entrepreneurs whose pre-reform taxable income was closest to a kink where marginal personal income tax rates increase steeply are more likely start a corporation. Total tax paid by these entrepreneurs significantly decreases, suggesting they reap the tax benefits of operating as a corporation. However, there is no evidence of changes to overall business activity, measured in terms of total assets and the probability of having employees. Finally, there are no significant differences in the probability that entrepreneurs own an unincorporated business, which suggests that many entrepreneurs operate a corporation alongside an unincorporated firm.

Empirical evidence suggests that bunching at tax kinks primarily occurs among taxpayers who self-report their incomes. I generalize the standard taxable income model and allow for bunching at an additional intuitive margin. Taxpayers who pay a fixed cost may minimize taxes by reporting taxable income at the kink. I study an economy with subgroup-specific joint distributions of earnings abilities and shifting costs. Although everyone faces the same tax system, the kink is to be found at different parts of the subgroup-specific income distributions. The bunching response generally depends not only on elasticities and shifting costs but also on the global properties of the income distribution to the right of the kink. A key insight is that a higher excess mass does not necessarily imply greater responsiveness to taxation. Finally, I examine heterogeneity in bunching at a large and salient kink point in Sweden through the lens of the model.

We study the links between labor and capital taxation in the context of two simultaneous tax reforms in France in 2018: a reduction in the corporate income tax rate and the introduction of a 30% flat tax on dividends. Using new microdata on business ownership, we link corporate tax returns to the personal tax returns of their shareholders. This allows us to examine how the differential of tax liabilities between tax bases affects business entry and income shifting among self-employed workers. Our findings support significant income shifting behavior, particularly among top earners who benefit the most from such tax avoidance practices.

Several countries use preferential tax schemes to attract high-skilled workers from abroad. While these schemes are motivated by the positive spillover effects of tax- induced immigration on receiving countries, there is limited empirical evidence documenting these human capital externalities in the context of tax-induced immigration. In this project, we investigate the firm-level effects of tax-induced immigration in Italy, which offer preferential tax schemes for high-skilled immigrants and returnees since 2010. Using social security data and leveraging pre-existing variation in firms’ exposure to the policy, we estimate the effects of tax-induced immigration on productivity, wages, employment and other outcomes of firms and co-workers.