The Effects of Allowing Professional Incorporation on Physician Labour Supply

Abstract We study how tax deferral policies shape labour supply decisions over the lifecycle. Between 1975 and 2005, Canadian provinces allowed physicians to incorporate, providing high-income professionals with substantial tax deferral opportunities. Using a difference-in-differences identification strategy, we find that incorporation reduced work effort by facilitating earlier retirement. Physician supply fell by 6.8% over the long run, with especially large declines among older physicians and high-earning surgical specialists. These results provide long-run evidence of how these tax deferral policies, designed to affect high-skill labour, can alter timing of retirement and reduce labour supply.