Martin Jacob, adidas Professor for Finance, Accounting and Taxation at WHU – Otto Beisheim School of Management, Vallendar, is one of the principal investigators of the project B01 „Investment Effects of Taxation“. Together with Caren Sureth-Sloane he investigates, how taxes and tax-related transparency affect firm-level investment behavior. The findings from this project can provide important impetus in the corona crisis.
Taxation research: Doing something relevant
What I like most about taxation research is that you are constantly challenged. You always have the opportunity to discover something new. It also gives me a sense of doing something relevant as it has a clear policy relevant and educational component. Everyone has to pay taxes and everyone thinks they know something about it. But in order to really understand it one really has to get to the heart of the matter. Most people lack the necessary base to critically question tax policy decisions. That’s where we come in: With our research we can shed some light on the subject and explain how certain tax policy decisions work and whether and why they are necessary.
With our research we can […] explain how certain tax policy decisions work and whether and why they are necessary.
Teaching: Creating ‘Aha!’ moments
It is a great feeling to notice how during a lecture students begin to comprehend the matter: “Ah, so that’s how it works. That’s why we do this”. It really inspires me to create these special moments. A tight link between teaching and research is important to me. I incorporate findings from my research into my lectures and pass them on to my students. The art is to explain complex issues as simply as possible and to break them down to the essential. However, it is necessary to keep in mind that the answers cannot always be simple and clear. That’s why it is important to look at things from different perspectives – and not to oversimplify them while conveying them.
TRR 266: Intensive exchange, new impulses
For me, the TRR 266 primarily stands for an intensive exchange with other researchers and the opportunity to promote young researchers – through joint projects or special formats such as staff rotation. At WHU, Reyhaneh Safaei – a doctoral student from the TRR 266 location in Paderborn – visited us for three months and supported us in our research. It was a great experience for her and for us, which gave us all great new impulses.
For me, the TRR 266 primarily stands for an intensive exchange with other researchers and the opportunity to promote young researchers
“Investment Effects of Taxation”
In the TRR 266, I am affiliated with the project B01 “Investment Effects of Taxation”. In this project, we investigate how taxes and tax transparency affect the investment behaviour of companies. What happens when tax rates change? How do companies react? Do they invest more or less? And what role do the characteristics of a company play in this context?
We are currently examining the effects of changes in income taxes paid by employees on companies. We have studied several 100,000 companies in Europe – using the different European income tax systems of the last 15 years. Our research suggests that income levels play a key role. According to our study, the adjustment of income taxation of low-income employees has a relatively large effect on companies – for employees with high income this effect is less pronounced. We will publish a first working paper on this topic in August at the latest.
Ultimately, we have to find the right balance between investment incentives and tax revenues.
COVID-19: How to find our way out of the economic crisis?
I would very much like the research we do to be noticed especially by regulators. The TRR 266 certainly cannot provide the all-encompassing solution. But, step by step, we can contribute more and more information and insights, which will gradually form an overall picture. Insights that can also help in times of Corona. Currently, we are in an economic crisis, so the question must be asked: How can we use tax incentives to find our way out of the crisis? At the same time, we have to make sure that we generate sufficient tax revenue. Ultimately, we have to find the right balance between investment incentives and tax revenues. In particular, our research in B01 on the investment effects of taxation can provide important insights.
Corona emergency aid: proper and important
Together with the other tax experts of the TRR 266, I submitted a statement to politicians in which we recommend an immediate loss carryback. A measure that was ultimately implemented by the federal and state governments – albeit in a somewhat scaled-down version. To me it is an important piece of the puzzle in the Corona emergency aid. It secures the liquidity of a company: Besides the tax prepayments already made for 2020, companies can also apply to the tax office for a refund of amounts paid for 2019.
A possible critique of the measure is that it not only supports healthy companies, but also companies that were already clearly struggling irrespective of Corona. I think it is difficult to make a clear and fair distinction between companies here, also from a legal point. All in all, I therefore feel the package of measures that has now been adopted is fitting. Especially when you consider how quickly a solution had to be found.
We must look ahead and ask ourselves whether we are still a competitive country with a corporate tax rate of around 30 percent.
Looking ahead: Goodbye, 30 percent?
Emergency aid measures are one thing. At the same time, we must look ahead and ask ourselves whether we are still a competitive country with a corporate tax rate of around 30 percent. Currently, we are in the top of high-tax countries worldwide: Only few countries like Brazil or Portugal are still ahead of us. In the long term, this means that we will receive less investments from abroad, whereas German companies will relocate elsewhere. Right now, we are in a crucial phase. Due to Corona, more and more companies will evaluate their strategy. Does it still make sense to produce exclusively in China? Should we rely exclusively on one country? We have seen how radically the supply chains were disrupted in the crises. This is an opportunity. It would therefore be desirable if the tax rates in Germany were so attractive that Germany would be considered an attractive location for these companies.
The article reflects the opinion of the researcher and not necessarily the views of the TRR 266. As a scientific association, the TRR 266 is committed to both freedom of speech and political neutrality.