Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323938 
Year of Publication: 
2025
Series/Report no.: 
arqus Discussion Paper No. 299
Publisher: 
Arbeitskreis Quantitative Steuerlehre (arqus), Berlin
Abstract: 
This study examines the effect of tax complexity on the market value of publicly traded firms. Using firm-level measures of tax complexity, we find that a one standard deviation increase in tax complexity-comparable in magnitude to the rise following the U.S. Tax Cuts and Jobs Act-is associated with a 2.6% decline in Tobin's Q. The effect is particularly pronounced for complexity arising from anti-avoidance regulations and post-filing procedures. The negative valuation effect is more substantial for firms with limited opportunities for international profit shifting, weak governance, or low internal information quality. Further analyses reveal that tax system complexity is associated with a reduced growth potential of firms and less R&D and thus negative real responses that go beyond negative investment effects. Overall, our findings provide novel evidence of the economic costs of tax complexity and contribute to the debate on the design of efficient and equitable tax systems.
Subjects: 
tax complexity
tax avoidance
firm value
tax code complexity
tax framework complexity
cost of complexity
JEL: 
M12
H26
H25
H32
Document Type: 
Working Paper

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