Firms’ Real and Reporting Responses to Tax Policy: Evidence on Investment Incentives, Anti-Avoidance Measures, and Dispute Resolution
by Matti Boie-Wegener
Date of Examination:2025-07-17
Date of issue:2025-07-31
Advisor:Prof. Dr. Andreas Oestreicher
Referee:Prof. Dr. Benedrikt Downar
Referee:Prof. Dr. Robert Schwager
Persistent Address:
http://dx.doi.org/10.53846/goediss-11419
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Abstract
English
This dissertation investigates how corporate behavior is shaped by tax policy, distinguishing between real responses and reporting responses. Drawing on three empirical studies, it explores firms’ reactions to investment incentives, anti-avoidance rules, and dispute resolution mechanisms in cross-border taxation. The results provide insights into the effectiveness and (un)intended consequences of different tax instruments, contributing to the literature on the intersection of taxation and firm behavior. The first study evaluates the fiscal effects of corporate tax rate cuts, accelerated depreciation, and investment tax credits during an economic downturn in Germany. Using a dynamic microsimulation model based on firm-level data, it quantifies the relief each measure provides and its impact on investment. The findings suggest that while tax rate cuts offer broad and immediate relief, they provide only limited investment incentives. In contrast, investment tax credits, particularly when structured as direct subsidies, offer more targeted incentives, including for loss-making firms. Accelerated depreciation schemes can be effective, but their benefits depend on firms’ ability to utilize loss offsets. Overall, the study highlights the importance of aligning tax instruments with policy objectives, such as short-term liquidity support versus long-term investment stimulation. The second study examines how multinational enterprises (MNEs) respond to the introduction of the Nexus Approach in Intellectual Property (IP) Box regimes. Designed as an anti-avoidance measure under the OECD’s BEPS initiative, the Nexus Approach links preferential IP tax treatment to local R&D activity. Using affiliate- and group-level panel data in a stacked difference-in-differences design, the study shows that MNEs reduce patent shifting to IP Box jurisdictions after the Nexus Approach is introduced. Instead, they increase investment and innovation in IP Box countries. However, the results indicate that this shift largely reflects a reallocation of activity within the MNE rather than a net increase in innovation or investment. These findings underline how anti-avoidance rules can succeed in curbing the separation of value creation and profit taxation; however, they also disadvantage non-IP Box countries, as firms respond by shifting real innovation activities to IP Box jurisdictions to retain tax benefits. The third study investigates the effect of arbitration clauses in double tax treaties on profit shifting and foreign direct investment (FDI). Using bilateral data and a stacked difference-in-differences design, the study finds that arbitration clauses reduce the risk of double taxation and thereby incentivize profit shifting, especially where tax rate differentials are large. However, they do not increase real FDI; in fact, real investment declines slightly, and shifted profits tend to be distributed rather than reinvested. These results reveal a potential trade-off. While arbitration clauses enhance legal certainty, they may also weaken the link between taxation and economic substance.
Keywords: tax policy; investment incentives; profit shifting
