The author thanks Prof. Andreas Oestreicher for his support on this research and for providing access to the Amadeus database.
A Markov Chain Analysis on the Impact of German Tax Loss Offset Restrictions†
Article first published online: 8 APR 2013
© 2013 The Economic Society of Australia
Economic Papers: A journal of applied economics and policy
Volume 32, Issue 1, pages 122–134, March 2013
How to Cite
Cui, L. (2013), A Markov Chain Analysis on the Impact of German Tax Loss Offset Restrictions. Economic Papers: A journal of applied economics and policy, 32: 122–134. doi: 10.1111/1759-3441.12016
- Issue published online: 8 APR 2013
- Article first published online: 8 APR 2013
- corporate taxation;
- tax loss carryforward;
- tax loss carryback;
- Markov chain;
- taxable profit
This article presents a set of microsimulation models to derive individual companies' tax data from their time series financial microdata by applying different tax offset restrictions. Based on this model, we develop a Markov chain model for simulating 1828 non-financial German companies in the Amadeus database to assess the impact of major reforms on German tax offset restrictions since 2001. Main results suggest that: (i) our developed Markov model is able to rather accurately predict the probabilities of a company's taxable profits (losses) in different levels; (ii) the introduction of more strict offsetting rules provides incentive for companies to provide less losses and become more conservative in their business operations; and (iii) the reforms have particularly important impacts on large and very large enterprises and on some sectors such as electricity, gas and water supply, construction and whole sale and retail trade.