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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.
Author: | Inga Bethmann, Martin Jacob, Maximilian A. Müller |
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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 |