Asymmetric Taxation and Cross-Border Investment Decisions

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Asymmetric Taxation and Cross-Border Investment Decisions

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Rainer Niemann ()

Abstract

This paper analyzes the impact of particular loss offset limitations on intrastate and cross-border investment decisions. Investment can be realized in the investor’s domestic business, in a foreign branch or in a foreign subsidiary. The relative impact on the optimal real investment alternative compared to the optimal financial investment alternative indicates the investment incentives of tax law asymmetries. Integrating an initial loss carryforward at the time of investment creates a special decision situation. Varying loss offset parameters typically induces ambiguous effects that depend on the combination of all parameters under consideration. On average, a domestic minimum tax and a time limit on loss carryforwards tend to depress real investment. However, it is possible to find counter-examples. Real investment projects with decreasing cash flows and expected infra-marginal projects are less likely to be discriminated against than projects with increasing cash flows and expected marginal projects, respectively. An initial loss carryforward generates a domestic lock-in effect that may be intensified by loss offset limitations. Depending on the parameter setting, the opposite – a push-out effect – may occur as well.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1219.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1219

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Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-07-04 (All new papers)
NEP-CFN-2004-07-04 (Corporate Finance)
NEP-PBE-2004-07-04 (Public Economics)
NEP-PUB-2004-07-26 (Public Finance)

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Rainer Niemann & Corinna Treisch, 2005. "Group Taxation, Asymmetric Taxation and Cross-Border Investment Incentives in Austria," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]

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