Income Shifting as Income Creation?

My joint paper with H. Selin (IFAU) has just been accepted for publication in the Journal of Public Economics.

It addresses income shifting – one of the key questions when thinking about the design of a tax system as a whole. We study a simple economy, involving a benevolent policy-maker and a population of agents differing in terms of productivities, labor supply elasticities, and shifting costs. Paying special attention to the cost structure of income shifting, we highlight that when people who shift easily along the extensive margin are also more elastic in labor supply, giving them a lower tax rate is a good thing, and the government should not necessarily combat income shifting. This mechanism may be compared to third-degree price discrimination in industrial organization and works as a form of endogenous tagging. We explore this possibility numerically before showing that our results derived for a policy-maker optimally adjusting two linear tax instruments carry over when two fully non-linear taxes are potentially available.

Discussing Income Shifting @ From Panama to BEPS: Tax Evasion or Tax Avoidance Conference

This multi-disciplinary conference is sponsored by the Max Planck Institute for Tax Law and Public Finance, the Norwegian Centre for Taxation, and the University of Notre Dame. Notre Dame funding is provided by the Nanovic Institute for European Studies, Notre Dame International, and the Kellogg Institute for International Studies. Within this framework, I was invited to present my work “Income shifting as income creation? The intensive vs. extensive” (joint with Håkan Selin from IFAU, Sweden).