Intertemporal income shifting around a large tax cut: The case of depreciations

Arbeitspapier

A corporate tax rate cut provides an incentive for corporations to shift taxable income from years before the tax rate cut to post-reform years. Our study analyzes whether depreciations and write-offs are used to achieve intertemporal income shifting. Using a panel of German manufacturing firms, we test in a difference-in-differences setting whether firms reacted to the announced 2008 corporate tax rate cut of 10 percentage points by accumulating depreciation expenses in the pre-reform year. Our results suggest that depreciation expenses in 2007 are on average about 2.5% higher than in the other observation years. Our analysis also sheds light on heterogeneity in intertemporal income shifting across firms. We provide evidence for a weaker reaction of loss firms resulting from a lower tax incentive. By contrast, we find stronger intertemporal income shifting of large firms and especially firms with a relatively high share of new investments in the capital stock. While the first result is consistent with a higher cost-efficiency of tax planning of large firms, the second finding suggests that investments in the current year provide more discretion for (tax-induced) earnings management.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: arqus Discussion Paper ; No. 229

Classification and Topics

• Classification: Wirtschaft ; Business Taxes and Subsidies including sales and value-added (VAT) ; Accounting
• Subject: Tax planning ; Intertemporal income shifting ; Tax avoidance opportunity ; Depreciations ; Write-offs

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dobbins, Laura ; Eichfelder, Sebastian ; Hechtner, Frank ; Hundsdoerfer, Jochen
• Event: Veröffentlichung
• (who): Arbeitskreis Quantitative Steuerlehre (arqus)
• (where): Berlin
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/182541