Analysis of the Effects of Tax Reform Measures on the Investment Response of Companies Using Micro Simulation Approaches – Framework Conditions for Investment Incentives

> Project coordination: Prof. Dr. Reinald Koch

>Project direction: Prof. Dr. Reinald Koch, Prof. Dr. Dominika Langenmayr, Prof. Dr. Andreas Oestreicher

> Team: Matti Boie-Wegener, Sandra Hartmann, Reinald Koch, Dominika Langenmayr, Andreas Oestreicher, Lena Schön

>Duration: August 2021 – April 2022

>Funded by: Federal Ministry for Economic Affairs and Energy

> Goal:

The objective of this research project is to evaluate the economic effect of a number of tax reform proposals currently under discussion in Germany and internationally. We consider
- adjustment of interest rates under tax law to market conditions,
- a reduction of the corporate tax rate and the tax rate on retained profits, as well as abolition of the remaining elements of the solidarity surcharge,
- enhanced depreciation possibilities,
- a net wealth tax or property levy,
- an enhanced crediting of trade tax payments to income tax and corporate tax payments, as well as
- the tax reform proposals by the OECD and the EU.
In this project, the first round effects on tax revenue are to be assessed as accurately as possible using microsimulation models. Use of a microsimulation model further allows evaluation and comparison of relieving effects of such legal changes for companies, depending on their legal form, size and sector. Besides the direct effects of such tax reforms, an impact assessment must also take into account the fact that amended tax framework conditions also influence company behavior. With respect to the measures investigated, we assume in particular that there will be investment effects, finance effects, and effects on liquidity. Such second round effects are discussed with reference to the empirical literature and analyzed in terms of their quantitative significance for the outlined reform plans.