Impact of Tax-Rate Cut cum Base-Broadening Reforms on Heterogeneous Firms: Learning from the German Tax Reform of 2008
The German 2008 corporate tax reform followed the distinct and internationally prevalent pattern of tax-rate cut cum base broadening. Based on a new corporate microsimulation model, ZEW TaxCoMM, we assess the heterogeneous effects of the tax reform on firms, varying according to some of the firms' key characteristics. This is important for understanding the reform's implications in view of the recent economic crisis. Moreover, the model also allows for the behavioral responses of firms to a new tax environment. The 2008 reform has indeed been targeted at affecting firm behavior, in particular profit-shifting incentives. By means of a detailed reform costing, the model can investigate the extent to which the 2008 reform can actually be considered self-financing. The simulation results show that in times of economic downturn, with shrinking profitability and increasing demand for external financing, the 2008 reform might indeed exert a procyclical effect on the economy: Companies losing from the reform are exactly those that feature a low profitability, a high debt ratio, and high capital intensity. With regard to revenue consequences, the reform provisions are simulated to lead to a 19.7% decline in aggregate tax revenue. However, taking into account behavioral responses of firms with respect to their financing, investment, and profit-shifting behavior, total revenue is simulated to reach again 84.7% of the 2007 benchmark revenue, even in the short term. In a rather long-term perspective, the reform might even be 92.4% self-financing.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 69 (2013)
Issue (Month): 1 (March)
|Contact details of provider:|| Web page: https://www.mohr.de/fa|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
References listed on IDEAS
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.:
- Joao Gomes & Leonid Kogan & Lu Zhang, 2003.
"Equilibrium Cross Section of Returns,"
Journal of Political Economy,
University of Chicago Press, vol. 111(4), pages 693-732, August.
- Gomes, Joao F & Kogan, Leonid & Zhang, Lu, 2002. "Equilibrium Cross-Section of Returns," CEPR Discussion Papers 3482, C.E.P.R. Discussion Papers.
- Michael Devereux, 2003. "Measuring taxes on income from capital," IFS Working Papers W03/04, Institute for Fiscal Studies.
- Michael P. Devereux, 2003. "Measuring Taxes on Income from Capital," CESifo Working Paper Series 962, CESifo Group Munich.
- Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
- Robin Boadway & Neil Bruce, 1982. "A General Proposition on the Design of a Neutral Business Tax," Working Papers 461, Queen's University, Department of Economics.
- Asea, Patrick K. & Turnovsky, Stephen J., 1998. "Capital income taxation and risk-taking in a small open economy," Journal of Public Economics, Elsevier, vol. 68(1), pages 55-90, April.
- Patrick Asea & Stephen Turnovsky, 1997. "Capital Income Taxation and Risk-Taking in a Small Open Economy," UCLA Economics Working Papers 768, UCLA Department of Economics.
- Patrick K. Asea & Stephen J. Turnovsky, 1997. "Capital Income Taxation and Risk-Taking in a Small Open Economy," NBER Working Papers 6189, National Bureau of Economic Research, Inc.
- Andrew B. Abel, 2007. "Optimal Capital Income Taxation," NBER Working Papers 13354, National Bureau of Economic Research, Inc.
- Gordon, Roger H & Wilson, John Douglas, 1989. "Measuring the Efficiency Cost of Taxing Risky Capital Income," American Economic Review, American Economic Association, vol. 79(3), pages 427-439, June.
- Roger H. Gordon & John D. Wilson, 1986. "Measuring the Efficiency Cost of Taxing Risky Capital Income," NBER Working Papers 1992, National Bureau of Economic Research, Inc.
- Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 1-27.
- David Cass, 1965. "Optimum Growth in an Aggregative Model of Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 32(3), pages 233-240.
- Bulow, Jeremy I & Summers, Lawrence H, 1984. "The Taxation of Risky Assets," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 20-39, February.
- Jeremy I. Bulow & Lawrence H. Summers, 1982. "The Taxation of Risky Assets," NBER Working Papers 0897, National Bureau of Economic Research, Inc.
- Michael Devereux & Alexander Klemm, 2003. "Measuring taxes on income from capital: evidence from the UK," IFS Working Papers W03/03, Institute for Fiscal Studies.
- Michael P. Devereux & Alexander Klemm, 2003. "Measuring Taxes on Income from Capital: Evidence from the UK," CESifo Working Paper Series 968, CESifo Group Munich.
- Jaksa Cvitanic & Fernando Zapatero, 2004. "Introduction to the Economics and Mathematics of Financial Markets," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532654, July.
- Fane, G., 1987. "Neutral taxation under uncertainty," Journal of Public Economics, Elsevier, vol. 33(1), pages 95-105, June. Full references (including those not matched with items on IDEAS)