Intertemporal Income Shifting Around a Large Tax Cut: the Case of Depreciations

Hechtner F, Eichfelder S, Hundsdoerfer J, Dobbins L (2018)

Publication Type: Journal article

Publication year: 2018


Book Volume: Volume 70

Pages Range: 313-340

Journal Issue: 4

DOI: 10.1007/s41464-018-0056-0


A corporate tax rate cut provides an incentive for corporations to shift taxable income from years before the tax rate cut to post-reform years. Our study analyzes whether depreciations and write-offs are used to achieve intertemporal income shifting. Using a panel of German manufacturing firms, we test in a difference-in-differences setting whether firms reacted to the announced 2008 corporate tax rate cut of 10 percentage points by accumulating depreciation expenses in the pre-reform year. Our results suggest that depreciation expenses in 2007 are on average about 2.5% higher than in the other observation years. Our analysis also sheds light on heterogeneity in intertemporal income shifting across firms. We provide evidence for a weaker reaction of loss firms resulting from a lower tax incentive. By contrast, we find stronger intertemporal income shifting of large firms and especially firms with a relatively high share of new investments in the capital stock. While the first result is consistent with a higher cost-efficiency of tax planning of large firms, the second finding suggests that investments in the current year provide more discretion for (tax-induced) earnings management.

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Hechtner, F., Eichfelder, S., Hundsdoerfer, J., & Dobbins, L. (2018). Intertemporal Income Shifting Around a Large Tax Cut: the Case of Depreciations. Schmalenbach Business Review, Volume 70(4), 313-340.


Hechtner, Frank, et al. "Intertemporal Income Shifting Around a Large Tax Cut: the Case of Depreciations." Schmalenbach Business Review Volume 70.4 (2018): 313-340.

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