GABRIELLA MASSENZ

WORK IN PROGRESS

We conduct a systematic analysis of tax responsiveness of owner-managed companies. To do so, we use ten years of Dutch administrative tax records linking firms to their owners, and exploit a kink in the corporate income tax schedule. We find that firms reduce taxable income in response to higher tax rates, with a small corporate taxable income elasticity (CETI) of 0.08. The tax sensitivity is over three times as large for firms using specific types of investment deductions. These are generous, allow for large depreciation and often include assets that can reflect owner-managers' consumption. We show that the CETI increases with the use of such deductions and provide evidence attributing this to intertemporal income shifting rather than real economic responses. In addition, we find greater elasticities for large firms operating in industries that easily access these deductions. Finally, we find that some firms are persistently located at the kink, with a CETI of 0.8. Persistence is driven by large firms that frequently use deductions, operate in industries with easy access to deductions and with high human-capital intensity, and by firms whose owner-managers repeatedly target personal income tax kinks.

[Link to paper] [Online Appendix]

Changes to loss offset rules are often used as a fiscal stimulus measure in times of crisis to alleviate firms' constraints and support the economy. The effect of these measures has been assessed in the literature using large listed firms, but there is no evidence on the effect of these policies on small private firms so far. We study a temporary change in the loss carry-back period implemented in the Netherlands over 2009-2011 using administrative and tax return data on small private corporations. Using a difference-in-difference set up and matching techniques, we show that an additional year of carry-back has a significant effect on treated firms' investments, but no significant effect on firms' survival, employment and profits. The positive effect on investments is not driven by equity injections but rather by debt increases. Crucially, the significance of the effect on investments is conditional on the size of the additional carry-back.

[Link to paper]

PUBLICATIONS

FinanzArchiv: Public Finance Analysis, October 2021, vol. 77, issue 3, pp. 247-286, joint with Arjan Lejour

We study how differential taxation of personal and corporate income impacts the corporate share of new firms for 31 countries over 1998-2018. We build a novel database that identifies the tax treatment of partnerships either as corporations or pass-through entities. We find a tax elasticity of 0.07 for the period 1998-2007 and of 0.12 for 2008-2018. Estimates are larger for countries where the presence of partnerships is non-negligible and where they are treated as pass-through for tax purposes, suggesting that the tax sensitivity of organizational form choice interacts with the relevance of partnerships and their tax treatment.

[Link to paper] [Ungated version]

De Economist,  February 2018, vol. 166, issue 2, pp. 135-154, joint with Egbert Jongen and Arjan Lejour

We study the effect of the reduction in the VAT rate on hairdresser services from 17.5 to 6% in the Netherlands in January 2000. Following Kosonen (J Public Econ 131:87–100, 2015), we use differences-in-differences to estimate the effects of this reform, with beauty salons as the main control group. In our preferred specification, we find close to full pass-through of the VAT cut into lower prices. However, we find no statistically or economically significant effect on the volume of sales or employment. 

[Link to paper]

DOCTORAL THESIS

On the behavioral effects of tax policy

[Doctoral Thesis, Tilburg University]. CentER, Center for Economic Research. 

This thesis investigates how features of the tax system influence the behavior of business owners and their firms. The first chapter examines how differential taxation of personal and corporate income impacts firms’ legal form choice. The second chapter explores how closely held corporations and their owners respond to corporate tax incentives. Specifically, it investigates the main channels of adjustment, the main predictors of responsiveness, persistence in firms’ and director-owners’ behavior, and the link between personal and corporate taxable income optimization. Finally, the third chapter studies the effect of a fiscal stimulus policy that temporarily changed loss carry-back rules on small and medium corporations’ survival, employment, investments, and profits. 

[Link to publication]