This project exploits rich administrative tax-return data on the population of Austrian small and medium enterprises and their owners to study the behavioral responses of firms to taxes. The preliminary results show that firm-owners respond strongly to the first income tax kink. The analysis of monthly turnover data of their firms reveals abnormally low turnover levels towards the end of the year for firms with taxable incomes close to the kink – a phenomenon called inverse December fever. The project then identifies the potential mechanisms including income under-reporting that firms use to adjust their gross income.