International Tax and Public Finance

, Volume 20, Issue 3, pp 513–543 | Cite as

Investment impact of tax loss treatment—empirical insights from a panel of multinationals

  • Daniel Dreßler
  • Michael OvereschEmail author


We analyze the impact of tax loss treatment on multinational investment. Basically, two effects of tax loss treatment can be expected. First, firms make their investment decisions considering potential future losses. Then, the various types of conceivable loss offset provisions affect investment decisions. Secondly, existing loss carryforwards resulting from losses in the past affect the tax rate elasticity of current investment decisions. Our empirical analysis is based on data of German multinationals. We pay particular attention to industries having a high probability to make losses. Our regression results suggest that a short carryforward time limit lowers investment in particular for firms with a high loss probability. We only find mixed evidence that group loss offsetting provisions foster investment. Concerning the effects of existing losses carried forward, we find a reduced tax rate elasticity of investment for companies shielded by loss carryforwards.


Corporate taxation Loss treatment Group taxation Multinational firms Empirical analysis 

JEL Classification

F23 H25 H32 



We thank Dhammika Dharmapala, two anonymous referees, seminar participants at the University of Brescia and participants of the VHB conference 2011 in Kaiserslautern, the IIPF conference 2010 in Uppsala and the MiDi-Workshop 2010 in Frankfurt for helpful comments. We would like to thank the Deutsche Bundesbank for granting access to the MiDi database. Financial support by the German Science Foundation (DFG) is gratefully acknowledged. The usual disclaimer applies.


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Centre for European Economic Research (ZEW)MannheimGermany
  2. 2.Department for Business Administration and Economics, Westend CampusGoethe University FrankfurtFrankfurtGermany

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