Veranstaltungsprogramm der VHB Jahrestagung

Using a mixed-methods approach, we examine the effects of corporate tax complexity and tax misperceptions on the choice of organizational form. In a first study, we use German administrative tax return data and demonstrate that most entrepreneurs who can choose between taxing retained earnings under the partnership rules (pass-through principle) and the corporate income tax rules (double taxation principle) avoid opting for corporate taxation even though doing so would lead to significant tax savings. In a second study, we use an experiment to show that the corporate double-tax regime is perceived as significantly more complex. This complexity has a direct negative effect on opting for corporate taxation as complexity-averse individuals refrain from choosing the more complex option. In addition, corporate tax complexity has an indirect negative effect on opting for corporate taxation, mediated by an overestimation of the corporate tax burden.

This paper provides evidence on short-run tax incidence on company profits using data from a survey experiment with German firms. Managers, facing tax burden changes, have various adjustment margins impacting different groups. Our experimental design allows us to measure the resources allocated to a large set of possible adjustment margins, whereas the literature typically studies one margin at a time. We document that from a EUR 100 increase in the tax burden, workers pay EUR 17 through changes in wages and employment, firm owners EUR 23 through forgone distributed profits, and consumers EUR 18 via price increases. The remaining 43 EUR are financed through changes in investment, reserves, and debt, among other margins. By exploiting experimental variation in the assignment of hypothetical permanent tax increases and decreases, we find that profit tax incidence is highly asymmetric, especially with regard to prices, and sensitive to the size of the tax change.