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Tax Loss Offset Restrictions - Last Resort for the Treasury?: An Empirical Evaluation of Tax Loss Offset Restrictions Based on Micro Data

  • Nadja Dwenger

In Germany, the tax loss carry-forward of corporations significantly increased over the last decade. At the same time only a small percentage of losses have been effectively offset in the following periods. One potential reason for this puzzle is that stricter loss offset restrictions have been introduced in recent years. I use a newly developed micro simulation model for the corporate sector in Germany to evaluate the fiscal effects of these restrictions. Additionally, distributional breakdowns concerning the amounts of tax loss carry-forward and the effects of loss offset restrictions are provided. I find that the restrictions on the use of tax loss carryback are rather ineffective while the newly introduced minimum taxation considerably increases yearly tax revenue by 1.1 billion €.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.79199.de/dp764.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 764.

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Length: 19 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwwpp:dp764
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  1. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December.
  2. Stefan Bach & Nadja Dwenger, 2007. "Unternehmensbesteuerung: trotz hoher Steuersätze mäßiges Aufkommen," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 74(5), pages 57-65.
  3. Alan J. Auerbach, 1983. "Real Determinants of Corporate Leverage," NBER Working Papers 1151, National Bureau of Economic Research, Inc.
  4. Ramb, Fred, 2007. "Corporate marginal tax rate, tax loss carryforwards and investment functions: empirical analysis using a large German panel data set," Discussion Paper Series 1: Economic Studies 2007,21, Deutsche Bundesbank, Research Centre.
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  7. Mintz, Jack M, 1988. "An Empirical Estimate of Corporate Tax Refundability and Effective Tax Rates," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 225-31, February.
  8. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July.
  9. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  10. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
  11. Cordes, Joseph J & Sheffrin, Steven M, 1983. " Estimating the Tax Advantage of Corporate Debt," Journal of Finance, American Finance Association, vol. 38(1), pages 95-105, March.
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