Intertemporal Income Shifting Around a Large Tax Cut: the Case of Depreciations

Schmalenbach Business Review - 2018
Laura Dobbins1, Sebastian Eichfelder2, Frank Hechtner1,3, Jochen Hundsdoerfer4,5
1Tax Research Affiliate, Freie Universität Berlin, Berlin, Germany
2Otto-von-Guericke Universität Magdeburg, Magdeburg, Germany
3Technische Universität Kaiserslautern, Kaiserslautern, Germany
4NoCeT, Bergen, Norway
5Freie Universität Berlin, Berlin, Germany

Tóm tắt

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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