Impact of Tax-Rate Cut cum Base-Broadening Reforms on Heterogeneous Firms: Learning from the German Tax Reform of 2008

Katharina Finke, Jost Heckemeyer, Timo Reister and Christoph Spengel

FinanzArchiv: Public Finance Analysis, 2013, vol. 69, issue 1, 72-114

Abstract: 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.

Keywords: tax reform; microsimulation; tax policy evaluation (search for similar items in EconPapers)
JEL-codes: H25 H32 K34 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.mohrsiebeck.com/en/article/impact-of-t ... 1628001522113x663488 (text/html)
Fulltext access is included for subscribers to the printed version.

Related works:
Working Paper: Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008 (2011)
Working Paper: Impact of Tax Rate Cut Cum Base Broadening Reforms on Heterogeneous Firms – Learning from the German Tax Reform 2008 (2010)
Working Paper: Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008 (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mhr:finarc:urn:sici:0015-2218(201303)69:1_72:iotccb_2.0.tx_2-m

Ordering information: This journal article can be ordered from
Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany

DOI: 10.1628/001522108X663488

Access Statistics for this article

FinanzArchiv: Public Finance Analysis is currently edited by Alfons Weichenrieder, Ronnie Schöb and Jean-François Tremblay

More articles in FinanzArchiv: Public Finance Analysis from Mohr Siebeck, Tübingen
Bibliographic data for series maintained by Thomas Wolpert ().