Using small businesses for individual tax planning: evidence from special tax regimes in Chile
Author
dc.contributor.author
Engel Goetz, Eduardo
Author
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Agostini, Claudio
Author
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Repetto, Andrea
Author
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Vergara, Damian
Admission date
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2019-05-03T14:35:15Z
Available date
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2019-05-03T14:35:15Z
Publication date
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2018
Cita de ítem
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International Tax and Public Finance Vol. 25, No. 6, pp. 1.449 - 1.489, Diciembre, 2018
es_ES
Identifier
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ISSN: 0927-5940
Identifier
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https://doi.org/10.1007/s10797-018-9509-0
Identifier
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https://repositorio.uchile.cl/handle/2250/168410
Abstract
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Many countries have special tax regimes (STRs) for small businesses. Even though
these regimes may reduce compliance costs, they increase the complexity of the tax
system and can be used by high-income individuals to avoid taxes. This paper uses
administrative data from Chile to analyze whether the use of STRs is associated with
strategic tax planning at the individual level. A descriptive analysis of the data finds
three stylized facts that, taken together, are consistent with strategic behavior: STRs
are used frequently, they are used mainly by high-income taxpayers, and high-income
taxpayers are more likely to hold a portfolio of businesses filing taxes under STRs. We
rationalize these facts with a simple model of small business creation and tax planning
and test the model’s predictions. We find that following a reform that made a particular
STR more restrictive, reported individual incomes from businesses filing under that
STR decreased between 10 and 15%, while income reported from alternative sources
increased. Overall Taxable Income increased between 4 and 7%. This increase is
explained by the more restrictive scenario for avoiding taxes through STRs, consistent
with individuals using these regimes for tax planning.