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Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008

Author

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  • Finke, Katharina
  • Heckemeyer, Jost Henrich
  • Reister, Timo
  • Spengel, Christoph
Abstract
The German corporate tax reform of 2008 has brought about important cuts in corporate tax rates, which were at the same time accompanied by significant changes in the determination of the tax base for both major German corporate taxes - corporate income tax and trade tax. The reform followed the distinct and internationally prevalent pattern of tax rate cut cum base broadening. Its implications are thus not unique to Germany. Especially in view of the current economic crisis, questions on the distribution of the tax burden among firms of different characteristics have arisen and still remain at the heart of the academic and political debate in Germany and other countries. In this paper we present a new corporate microsimulation model, ZEW TaxCoMM, which allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. The model processes firm-level financial accounting input data and derives the firm specific tax base and tax due endogenously in accordance with the tax code. To smooth out distortions between the sample and the population of German corporations, the sample is extrapolated on the basis of the corporate income tax statistic. The simulation results show inter alia that the average annual relief as measured by the average decline in the effective tax burden on cash flow amounts to 2.8 percentage points for large corporations and to 6 percentage points for small corporations. Furthermore, the results illustrate that firms with low profitability, high debt ratio and high capital intensity benefit least from the reform. As to tax revenues, the reform induced decrease amounts to € 9.8 billion and the trade tax gains fiscally in importance.

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  • Finke, Katharina & Heckemeyer, Jost Henrich & Reister, Timo & Spengel, Christoph, 2010. "Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008," ZEW Discussion Papers 10-036, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:10036
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    Cited by:

    1. Aria Ardalan & Sebastian G. Kessing & Salmai Qari & Malte Zoubek, 2023. "Does capital bear the burden of local corporate taxes? Evidence from Germany," Volkswirtschaftliche Diskussionsbeiträge 194-23, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    2. Bauer, Christian & Davies, Ronald B. & Haufler, Andreas, 2014. "Economic integration and the optimal corporate tax structure with heterogeneous firms," Journal of Public Economics, Elsevier, vol. 110(C), pages 42-56.
    3. Thomas Hoppe & Ralf Maiterth & Caren Sureth-Sloane, 2016. "Eigenkapitalverzehr und Substanzbesteuerung deutscher Unternehmen durch eine Vermögensteuer – eine empirische Analyse [Wealth Tax-Induced Equity Loss and Asset Erosion of German Companies – An Empi," Schmalenbach Journal of Business Research, Springer, vol. 68(1), pages 3-45, April.
    4. Christoph Spengel & Sebastian Lazar & Lisa Evers & Benedikt Zinn, 2012. "Reduction of the effective corporate tax burden in Romania 1992--2012 and Romania's current ranking among the Central and Eastern European EU member states," Post-Communist Economies, Taylor & Francis Journals, vol. 24(4), pages 477-502, August.
    5. Finke, Katharina & Heckemeyer, Jost H. & Spengel, Christoph, 2014. "Assessing the impact of introducing an ACE regime: A behavioural corporate microsimulation analysis for Germany," ZEW Discussion Papers 14-033, ZEW - Leibniz Centre for European Economic Research.
    6. Michael Stimmelmayr, 2018. "Investors' Portfolio Choice and Tax Reforms: The 2008 German Corporate Tax Reform Reconsidered," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 74(3), pages 376-413, September.
    7. Jens Müller & Caren Sureth, 2011. "Marktnahe Bewertung von Unternehmen nach der Erbschaftsteuerreform?," Schmalenbach Journal of Business Research, Springer, vol. 63(63), pages 45-83, January.
    8. Claudia Neugebauer & Kerstin Schneider, 2011. "Die Gewerbesteuer in der Unternehmensteuerreform 2008 — Eine Simulation der Aufkommens- und Belastungseffekte," Schmalenbach Journal of Business Research, Springer, vol. 63(8), pages 832-857, December.
    9. Bofinger, Peter & Schnabel, Isabel & Feld, Lars P. & Schmidt, Christoph M. & Wieland, Volker, 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16 [Focus on Future Viability. Annual Report 2015/16]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    10. Anna Leszczyłowska, 2016. "Provisions for Future Liabilities and Effective Corporate Income Tax Rate," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 57-72.
    11. Wagner, Julia, 2015. "EBITDA-Vortrag - cui bono? Eine Gesetzesevaluation auf Basis einer Mikrosimulation," Discussion Papers 2015/31, Free University Berlin, School of Business & Economics.
    12. Annelies Roggeman & Isabelle Verleyen & Philippe Van Cauwenberge & Carine Coppens, 2014. "Impact of a Common Corporate Tax Base on the effective tax burden in Belgium," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 15(3), pages 530-543, June.
    13. Spengel, Christoph & Lazar, Sebastian & Evers, Lisa & Zinn, Benedikt, 2012. "Romania's development to a low-tax country: Effective corporate tax burden in Romania from 1992 to 2010 and Romania's current ranking among the eastern European member states," ZEW Discussion Papers 12-003, ZEW - Leibniz Centre for European Economic Research.
    14. Stepan S. Bykov & Horst Zimmermann, 2018. "Tax expenditure as a problem in intergovernmental relations," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 4(1), pages 27-44.

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    More about this item

    Keywords

    tax reform; microsimulation; tax policy evaluation;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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