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Tax loss carrybacks

  • Tax regimes treat losses and profits asymmetrically when profits are immediately taxed but losses are not immediately refunded. We find that treating losses less asymmetrically by granting refunds less restrictively increases loss firms' investment: A third of the refund is invested and the rest is held as cash or returned to shareholders. However, the investment response is driven primarily by firms prone to engage in risky overinvestment. Consistent with the risk of misallocation, we find a delayed exit of low-productivity loss firms receiving less restrictive refunds, indicating potential distortion of the competitive selection of firms. This distortion also negatively affects aggregate output and productivity. Our results suggest that stimulating loss firms' investment with refunds unconditional on their future prospects comes at the risk of misallocation.

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Metadaten
Author:Inga Bethmann, Martin Jacob, Maximilian A. Müller
URL:https://ssrn.com/abstract=2711808
DOI:https://doi.org/10.2308/accr-51956
Parent Title (English):The Accounting Review
Series (Serial Number):FAccT Center Working Paper Series (21/2016)
Document Type:Article
Language:English
Date of Publication (online):2018/06/09
Publishing Institution:WHU - Otto Beisheim School of Management
Release Date:2018/06/09
Tag:Fehlleitung; Körperschaftssteuer; Steuerliche Assymetrie; Steuerlicher Verlustrücktrag; Steuerpolitik; Unternehmensinvestitionen
Corporate investments; Corporate taxation; Misallocation; Tax asymmetry; Tax loss carrybacks; Tax policy
Issue:Forthcoming
Note:
Publication status according to publisher: Received: November 29, 2016; Accepted: October 13, 2017
Institutes:WHU Centers / WHU Financial Accounting & Tax Center (FAccT Center)
JEL-Classification:G Financial Economics / G3 Corporate Finance and Governance / G31 Capital Budgeting; Fixed Investment and Inventory Studies
H Public Economics / H2 Taxation, Subsidies, and Revenue / H21 Efficiency; Optimal Taxation
H Public Economics / H2 Taxation, Subsidies, and Revenue / H25 Business Taxes and Subsidies
Licence (German):Copyright for this publication