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Assessing the impact of introducing an ACE regime : a behavioural corporate microsimulation analysis for Germany
Finke, Katharina
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Heckemeyer, Jost H.
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Spengel, Christoph
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URL:
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https://ub-madoc.bib.uni-mannheim.de/36864
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URN:
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urn:nbn:de:bsz:180-madoc-368641
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Dokumenttyp:
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Arbeitspapier
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Erscheinungsjahr:
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2014
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Titel einer Zeitschrift oder einer Reihe:
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ZEW Discussion Papers
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Band/Volume:
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14-033
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Ort der Veröffentlichung:
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Mannheim
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Sprache der Veröffentlichung:
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Englisch
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Einrichtung:
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Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
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MADOC-Schriftenreihe:
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Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
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Fachgebiet:
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330 Wirtschaft
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Fachklassifikation:
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JEL:
H 25 , H 32 , K 34,
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Freie Schlagwörter (Englisch):
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Tax reform , allowance for corporate equity , microsimulation , tax policy evaluation
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Abstract:
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In their famous Mirrlees review (2011) on reforming the tax system for the
21st century, the authors put forward the introduction of an allowance for corporate equity
regime. In recent years, several countries introduced an ACE regime. The main feature
of an ACE regime is that it removes tax distortions on marginal investment and finance
distortions. Yet, by narrowing the tax base an ACE regime potentially requires an increase
in tax rates which might affect location choices and profit shifting activity negatively. In this
paper, we employ a microsimulation model to determine the consequences of introducing an
ACE regime in Germany. The simulation results show that granting an ACE for corporate
income tax purposes results in a revenue loss of about 18%. This could be financed by an
increase of the combined profit tax rate by 6 percentage points. At firm level, our analysis
illustrates the heterogeneous distribution of the reform effect accross the sample. For 50%
of firms between the 25th and 75th percentile, introducing an ACE regime reduces tax
payments between 35% and 2%. If the ACE is combined with a tax rate adjustment, the
tax effect ranges between -32% and +7.1% for firms between the 25th and 75th percentile.
With respect to behavioural responses on decision margins, we find that introducing the
ACE reduces the mean debt-ratio by about 1.5 percentage points in the short run. For the
capital-stock we arrive at a mean short-term increase of 2.4%. Finally, our computations
show that the ACE regime with adjusted profit tax rate cannot be overall tax neutral. In
particular, the increase in the profit tax rate required to finance the equity allowance induces
intensified outward profit-shifting activities and affects location choices negatively. In the
short-run the tax revenue is therefore shown to decline to about 95% of its original level.
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