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Dive into the research topics where Michael Overesch is active.

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Featured researches published by Michael Overesch.


The Scandinavian Journal of Economics | 2011

What Drives Corporate Tax Rates Down? A Reassessment of Globalization, Tax Competition, and Dynamic Adjustment to Shocks

Michael Overesch; Johannes Rincke

We reassess the driving forces behind the recent decline of corporate tax rates in Europe. Using data for up to 32 countries from 1983 to 2006, we analyze the role of economic and financial openness as well as tax competition while allowing for dynamic adjustment to shocks and period-specific as well as country-specific effects. While openness does not seem to be systematically related to corporate tax rates, our findings suggest that countries compete over statutory tax rates. In contrast, we do not find competition over effective marginal rates. While the short-run impact of tax competition on corporate tax rates seems to be modest, the interplay of tax competition and a sluggish adjustment of tax rates over time implies that permanent shocks to individual countries have substantial long-run effects on equilibrium tax levels in all countries.


Journal of Banking and Finance | 2013

Capital structure choice and company taxation: A meta-study

Lars P. Feld; Jost H. Heckemeyer; Michael Overesch

This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 46 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham (1996a)) avoid a downward bias in estimates for the debt response to tax. Moreover, debt characteristics, econometric specifications, and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of 0.3.


The World Economy | 2009

Who Cares About Corporate Taxation? Asymmetric Tax Effects on Outbound FDI

Michael Overesch; Georg Wamser

This paper investigates whether different types of FDI are asymmetrically affected by corporate taxation. We classify investment projects according to several characteristics such as the general motivation for FDI, the type of business activity, or the degree of internationalisation of the multinational firm. Subsequently, we analyse how local taxes influence the number of German outbound investments in European countries. The analysis reveals significant asymmetries with regard to tax effects: vertically integrated investments are more sensitive to host-country taxation than horizontal FDI; larger tax rate elasticities are estimated if business activities are considered highly mobile; and in accordance with profit-shifting considerations, subsidiaries of more internationalised companies are less tax responsive to host-country taxation.


Applied Economics | 2010

Corporate tax planning and thin-capitalization rules: evidence from a quasi-experiment

Michael Overesch; Georg Wamser

This article investigates tax-planning behaviour by means of inter-company finance and the effectiveness of government countermeasures via thin-capitalization rules. A simple theoretical model which considers the financing decision of a multinational company is used to obtain empirical implications. The empirical analysis, based on German inbound investment data from 1996 to 2004, confirms a significant impact of tax-rate differentials on the use of inter-company debt. The effectiveness of the German thin-capitalization rule is tested by using legal amendments as natural experiments. The results suggest that thin-capitalization rules induce significantly lower internal borrowing. Hence, tax planning via internal finance is effectively limited by thin-capitalization rules.


Canadian Journal of Economics | 2017

Multinationals' profit response to tax differentials: Effect size and shifting channels

Jost H. Heckemeyer; Michael Overesch

English Abstract: This paper provides a quantitative review of the empirical literature on profit�?shifting behaviour of multinational firms. We synthesize the evidence from 27 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for confounding factors by means of meta�?regressions, we predict a tax semi�?elasticity of subsidiary pre�?tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Back�?of�?the�?envelope calculations suggest that transfer pricing and licensing are the dominant profit�?shifting channels. French Abstract: La réponse des profits des firmes plurinationales aux fiscalités différentielles : taille de l’effet et canaux de déplacement du fardeau fiscal. Ce mémoire fournit une revue quantitative de la littérature empirique sur le comportement de déplacement des profits des firmes plurinationales. On synthétise les résultats de 27 études et on découvre qu’il existe une réponse substantielle des mesures de profit aux différentiels dans les taux d’imposition entre nations. Tenant compte des facteurs confusionnels grâce aux méta�?régressions, on prédit une semi�?élasticité des impôts des profits avant�?taxes des filiales de l’ordre de 0,8. De plus, on démêle la composante de la réponse fiscale attribuable à la planification financière de celle attribuable aux prix de cession interne et à la concession de licences. Des calculs préliminaires suggèrent que ce sont là les canaux principaux de déplacement des profits.


National Tax Journal | 2007

The Effects of Multinationals' Profit Shifting Activities on Real Investments

Michael Overesch

This paper investigates whether the size of multinationals’ real investments in a high–tax country is affected by profit–shifting activities. Tax rates in locations other than the host country impact the cost of capital for multinational companies that shift profits. As profit–shifting opportunities constitute a competitive advantage, the respective size of investments should theoretically increase if profits can be shifted to a lower–taxing country. An empirical analysis based on a panel of German inbound investments confirms a positive tax response of real investments with an increasing tax rate differential between the host country and the foreign direct investor’s home country. Hence, the results suggest that the size of foreign investments in a high–tax country is positively affected by a lower taxation of shifted profits.


Economics and Politics | 2010

Rate Cutting Tax Reforms and Corporate Tax Competition in Europe

Friedrich Heinemann; Michael Overesch; Johannes Rincke

While there is a large and growing number of studies on the determinants of corporate tax rates, the literature has so far ignored the fact that the behavior of governments in setting tax rates is often best described as a discrete choice decision problem. We set up an empirical model that relates a governments decision whether to cut its corporate tax rate to the countrys own inherited tax and taxes in neighboring countries. Using comprehensive data on corporate tax reforms in Europe since 1980, we find evidence suggesting that the position in terms of the tax burden imposed on corporate income relative to geographical neighbors strongly affects the probability of rate cutting tax reforms. Countries are particularly likely to cut their statutory tax rate if the inherited tax is high and if they are exposed to low-tax neighbors.


The World Economy | 2009

Competition from Low-Wage Countries and the Decline of Corporate Tax Rates: Evidence from European Integration

Michael Overesch; Johannes Rincke

We exploit the rapid economic integration of Eastern and Western Europe after 1989 as a natural experiment to assess the effect of international competition for mobile capital on corporate tax rates. By means of a series of difference-in-difference estimations, we show that Western European countries which have been directly exposed to neighbours in Eastern Europe have reacted to the intensified competition by cutting their corporate tax rates by 8.1 to 10.5 percentage points relative to those countries which do not share a common border with countries in Eastern Europe. It seems that this effect has mainly worked through Eastern European countries offering lower wages and less through competition over corporate tax rates.


Archive | 2006

German Inbound Investment, Corporate Tax Planning, and Thin Capitalization Rules - a Difference-in-Differences Approach

Michael Overesch; Georg Wamser

This paper investigates tax planning behavior by means of inter-company finance and the effectiveness of fighting back via thin-capitalization rules. A simple theoretical model, which considers the financing decision of a multinational company, is used to obtain empirical implications. The empirical analysis, based on German inbound investment data from 1996 until 2004, supports a significant impact of tax rate differences on the use of intra-company debt. The effectiveness of the German thin-capitalization rule is tested by using legal amendments as natural experiments. The results suggest that the German thin-capitalization rule induces significantly lower intra-firm debt-levels of inbound investments. Hence, tax planning via intra-firm finance is effectively limited.


Archive | 2006

Transfer Pricing of Intrafirm Sales as a Profit Shifting Channel - Evidence from German Firm Data

Michael Overesch

This paper investigates whether transfer pricing of intrafirm sales within multinationals represents an important channel of company tax planning. A simple theoretical model, considering profit shifting activities of a multinational company, is used to obtain empirical implications. The empirical analysis, based on a panel of German multinationals, considers directly the supposed tax response of intrafirm sales. The analysis shows a significantly negative impact of the local tax rate on the size of balance sheet items, which reflect intrafirm sales. Thus, the results suggest that transfer pricing of intrafirm sales constitutes an important channel of companies? profit shifting activities.

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Georg Wamser

University of Tübingen

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Thiess Buettner

Ifo Institute for Economic Research

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