Working Paper: NBER ID: w25191
Authors: Annette Alstadster; Wojciech Kopczuk; Kjetil Telle
Abstract: In 2005, over 8% of Norwegian shareholders transferred their shares to new (legal) tax shelters intended to defer taxation of capital gains and dividends that would otherwise be taxable in the aftermath of 2006 reform. Using detailed administrative data we identify family networks and describe how take up of tax avoidance progresses within a network. A feature of the reform was that the ability to set up a tax shelter changed discontinuously with individual shareholding of a firm and we use this fact to estimate the causal effect of availability of tax avoidance for a taxpayer on tax avoidance by others in the network. We find that take up in a social network increases the likelihood that others will take up. This suggests that taxpayers affect each other's decisions about tax avoidance, highlighting the importance of accounting for social interactions in understanding enforcement and tax avoidance behavior, and providing a concrete example of “optimization frictions” in the context of behavioral responses to taxation.
Keywords: Tax avoidance; Social networks; Regression discontinuity design; Norwegian tax shelter
JEL Codes: D22; D23; H25; H26; H32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax shelter availability (H26) | Tax avoidance behavior of family network members (H26) |
| Individual shareholding (G34) | Likelihood of establishing a tax shelter (H26) |
| Likelihood of establishing a tax shelter (H26) | Tax avoidance behavior of family network members (H26) |
| Tax avoidance behavior of one individual (H26) | Tax avoidance behavior of others in family network (H26) |
| History of capital income (D33) | Likelihood to adopt tax shelters (H26) |