The general strategy of tax planners is to claim deductible expenses against fully taxable income, and report income in forms granted preferential tax treatment. The incentive for doing so is of course greater in countries with high statutory tax rates. High-income earners can then exploit a number of asset transactions to escape taxation. In Sweden before the 1990-91 tax reform these transactions ranged from sophisticated schemes of transforming corporate source income into low-taxed capital gains, to much simpler operations that exploited the fact that until 1985 net negative asset income was subtracted without limitation from labor income when calculating taxable income.
These latter schemes of purchasing low-taxed assets using borrowed money were not constrained by the supply of traditional tax shelters like housing and works of art. Because of the treatment of parents and children as separate tax payers, intra-family debt contracts were used as a tax planning device. Parents in high tax brackets claimed tax deductions while their children with no earned income reported positive interest income. There was also the opportunity to invest, within limits, borrowed money in an untaxed pension plan or tax favored savings account.
People seem to have responded to these incentives. According to the income distribution survey of Statistics Sweden (HINK), which contains data from the tax returns of a representative cross-section of 30,000 individuals, people with high labor income used to be much more heavily indebted than the average individual; see Edin, Englund, and Ekman (1995).
Microeconometric studies on data sets from the late 1970s indicate that individuals with high marginal tax rates were much more prone to own tax-favored assets, and to go into debt; see Agell and Edin (1990). According to the revenue statistics, people claimed tax deductions to such an extent that the personal capital income tax caused a substantial aggregate revenue loss.