TY  - JOUR
AU  - Alstadsæter, Annette
AU  - Kopczuk, Wojciech
AU  - Telle, Kjetil
TI  - Are Closely-Held Firms Tax Shelters?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 19609
PY  - 2013
Y2  - November 2013
DO  - 10.3386/w19609
UR  - http://www.nber.org/papers/w19609
L1  - http://www.nber.org/papers/w19609.pdf
N1  - Author contact info:
Annette Alstadsæter
School of Economics and Business  
Norwegian University of Life Sciences  
P.O. Box 5003, NO-1432 Ås  
Norway
E-Mail: annette.alstadsater@nmbu.no

Wojciech Kopczuk
Columbia University
420 West 118th Street, Rm. 1022 IAB
MC 3323
New York, NY  10027
Tel: 212/854-2519
Fax: 212/864-8059
E-Mail: wk2110@columbia.edu

Kjetil Telle
Statistics Norway
Research Department
Box 8131 Dep
0033 Oslo, Norway
E-Mail: tel@ssb.no
M1  - published as Annette Alstadsæter, Wojciech Kopczuk, Kjetil Telle. "Are Closely Held Firms Tax Shelters?," in Jeffrey R. Brown, editor, "Tax Policy and the Economy, Volume 28" University of Chicago Press (2014)

M3  - presented at "Tax Policy and the Economy", October 3, 2013
AB  - In 2004 Norwegian authorities announced a reform introducing dividend taxation for personal (but not corporate) owners to take effect starting in 2006. This change provided incentives to maximize dividends in 2004 and 2005, and to retain earnings in the following years. Using Norwegian registry data that cover the universe of non-publicly traded firms, we find that dividend payments responded very strongly to the anticipated reform, but also that much of the response was compensated by re-injecting shareholder equity in the same firms. On the other hand, following the reform firms began to retain earnings. While all categories of assets grow, the increase in durable assets categories that include equipment, machinery, company cars, planes and boats, is particularly striking. We find that personally owned firms and those that pursued aggressive dividend maximization policy in anticipation of the reform exhibit lower profits and economic activity in its aftermath, but retain earnings and accumulated assets at comparable or faster rate than others. The differential effect on assets is concentrated in financial (a potential substitute for private saving) and durable (a potential substitute for private consumption) asset categories.We interpret these results as indicating both the existence of real tax responses and supportive of the notion that in the presence of dividend taxation closely-held firms partially serve as tax shelters.
ER  -