Bunching of closely held corporations: Targeted tax incentives, persistence and firms’ heterogeneity

Abstract: We analyze bunching of closely held corporations at the 200,000 euros kink in the Dutch corporate income tax schedule. To do so, we use tax return and administrative data linking firms to their owners over 2009-2018. We investigate heterogeneity in individuals' and firms' characteristics and the use of targeted tax incentives. We find that bunching is driven by experienced and large firms using deductions for energy and environment investments and operating in agriculture, forestry and fishing industries. We show persistence in bunching, which is driven by large and consolidated firms using repeatedly energy and environment investment deductions, operating in agriculture, forestry and fishing industries and owned by director-owners who locate repeatedly near personal taxable income kinks.

(joint with N. Bosch)