Intertemporal Income Shifting for Investment Reasons: Evidence from Private Firms

This paper examines the intertemporal income-shifting behavior of private firms, as well as the level and efficiency of aggressive intertemporal income shifters' investments in the wake of corporate tax cuts. Earlier research has focused mainly on public firms. However, research into private firms is especially relevant since these companies tend to finance future growth through internal financing. Using a sample of 2,650 firm-year observations of private Spanish firms, our results thus show that private companies engaged in intertemporal income shifting to gain additional tax savings in the presence of corporate tax cuts. This was particularly observed in the presence of significant investment opportunities and timing pressures to shift income. Additionally, we provide evidence that aggressive intertemporal income shifters invested more in labor capital after tax reforms than other firms and that such investments were efficient.