Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/18858 
Authors: 
Year of Publication: 
2004
Series/Report no.: 
CESifo Working Paper No. 1219
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyzes the impact of particular loss offset limitations on intrastate and crossborder investment decisions. Investment can be realized in the investor's domestic business, in a foreign branch or in a foreign subsidiary. The relative impact on the optimal real investment alternative compared to the optimal financial investment alternative indicates the investment incentives of tax law asymmetries. Integrating an initial loss carryforward at the time of investment creates a special decision situation. Varying loss offset parameters typically induces ambiguous effects that depend on the combination of all parameters under consideration. On average, a domestic minimum tax and a time limit on loss carryforwards tend to depress real investment. However, it is possible to find counter-examples. Real investment projects with decreasing cash flows and expected infra-marginal projects are less likely to be discriminated against than projects with increasing cash flows and expected marginal projects, respectively. An initial loss carryforward generates a domestic lock-in effect that may be intensified by loss offset limitations. Depending on the parameter setting, the opposite – a push-out effect – may occur as well.
Subjects: 
investment
asymmetric taxation
loss offset
loss carryforward
minimum tax
JEL: 
G31
H25
Document Type: 
Working Paper
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