Taxes and the investment of mutual funds: Evidence from the German Investment Tax Reform

Reinald Koch and Lena Schön

No 282, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: This study investigates the impact of dividend taxes on equity mutual fund investments, using the 2018 German Investment Tax Reform as a unique case study. This reform eliminated the foreign tax credit for German fund investors, thereby introducing a new tax planning channel for German equity mutual funds. Analyzing data from 297 German equity mutual funds and comparable non-German equity and bond mutual funds, our findings indicate a significant shift in portfolio allocation post-reform. German equity mutual funds strategically shifted assets to countries with lower withholding tax rates and adjusted investments within countries to avoid taxes after the reform. We also examine the economic impact of the tax reform and find a negative relationship between the tax burden and fund inflows after the reform. Our findings provide valuable perspectives for policymakers, industry practitioners, and researchers by shedding light on the complex interplay between taxes, fund decisions, and investor responses.

Keywords: Dividend Taxes; Mutual Funds; Investment Decisions; Tax Avoidance (search for similar items in EconPapers)
JEL-codes: G23 H26 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:287738

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