Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30547 
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper No. 2798
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyses the effectiveness of the corporate income tax as an automatic stabilizer. It employs a unique firm-level dataset of German manufacturers combining financial statements with firm-specific information about credit market restrictions. The results show that approximately 20 per cent of all firms report both positive taxable income and capital market restrictions. Taking account of the income tax rates and the size differences of the firms, we find that demand stabilization through the corporate income tax amounts to about 8 per cent of an initial shock to gross revenues. This stabilization effect varies over the business cycle and tends to increase during cyclical downturns.
Subjects: 
corporate income tax
stabilization
capital market restrictions
loss offset
firm-level data
JEL: 
H25
H32
E63
Document Type: 
Working Paper
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