The Effect of Tax Uncertainty on Firm Decision-Making

In our research project, we conduct two interconnected surveys to examine the effect of firm profit tax uncertainty and its impact on investment plans. The first survey (Expert Survey) gathers insights from experts with a deep understanding of the German tax system. These experts were selected based on their academic knowledge and their internet presence associated with German faculties or research institutions. They are asked to specify their expectations regarding the development of firm profit taxes in Germany. The aggregated information collected from these experts regarding profit taxes is then utilized in a subsequent survey targeting firms.

The second part of our research consists of a firm survey, where participating firms were asked to fill out a survey concerning their perceptions of profit tax uncertainty and how it influences their investment plans. This survey incorporates a unique experimental component that leveraged the aggregated insights obtained from the expert survey.

The survey experiment consists of 3 experimental groups. In the high uncertainty group, firms are informed that there is a high likelihood of profit tax changes in the near future. This information is based on the opinions of a selected subgroup of experts from the expert survey, who have indicated that a change in profit taxes is very likely to occur. The aim of this treatment is to induce high uncertainty about profit tax changes to observe how firms might adjust their investment plans in response to increased tax uncertainty.

For participants in the low uncertainty treatment group, firms are informed about the expectations of a different subgroup of experts—those who believe there is a low likelihood of profit tax changes. This group of firms is made aware that a change in profit tax is very unlikely, thereby inducing low uncertainty about profit tax changes. The purpose of this treatment is to examine how firms' investment decisions differ when they perceive tax conditions as stable and predictable.

The control group receives information about the mean expected change in the profit tax, as specified by the aggregate of expert opinions gathered in the expert survey.

By integrating the expertise of academic professionals on the subject of profit taxes, our approach aims to provide a comprehensive understanding of how tax uncertainty affects the strategic decisions of firms operating within the German economic landscape.

2024-04-01

2025-04-01

- Survey question in which firms specify their expectations regarding the development of their profit taxes
- Survey question in which firm managers specify the percentage of revenue to use for investments
- Survey question in which firm managers specify the amount of money they are willing to pay to get access to a yearly expert report on the development of profit taxes

- Survey question in which firm managers specify the type of investments
- Survey question in which firm managers specify their level of tax knowledge
- Survey question in which firm managers specify their risk attitude
- Survey question in which firm managers specify if profit taxes are taken into consideration when firms decide on large investment projects

First Survey - Experts:
Expert survey in which experts specify their expectations regarding the firm profit tax development in Germany. We use aggregated information of experts regarding profit taxes in the second survey with firms.
Experts are selected on the basis of their academic expertise on the German tax system and whether they have an internet presence at a German faculty or research institution.

Second Survey - Firm Survey:
Participating firms fill out a survey relating to profit tax uncertainty and investment plans. This second survey includes a survey experiment in which we make use of aggregated information from our survey with experts.

In our firm survey, we make use of a survey experiment with 3 experimental groups.

Group 1 - High Uncertainty:
We use a subgroup of experts from our expert survey who specify a high likelihood of a profit tax change and make the firm aware that the profit tax is very likely to change.

Group 2 - Low Uncertainty:
We use a subgroup of experts from our expert survey who specify a low likelihood of a profit tax change and make the firm aware that the profit tax is not likely to change.

Control Group - Mean:
We inform firms about the mean expected change in the profit tax of firms specified by our experts in our expert survey.

By computer.

Specifically: We create 5 random numbers before the treatment in the survey. Firms are not able to see these random numbers, because it is hidden. Participants receiving the number 1 and 2 are the high uncertainty group. Number 3 and 4 -> Low uncertainty group. Number 5 -> control group. Basically, we have then 40% for the high uncertainty group and 40% for the low uncertainty group. 20% for control group.

Firm

No

1000

1000

40% of participants in the group "low uncertainty", 40% of participants in the group "high uncertainty", 20% of participants in control group (mean treatment).

Assumptions: - Power (1-ß): 0,80 - Type I error rate: 0,05 - Delta: 0.4 percentage points (4.4% - 4%) - Equally Sized Groups (low and high uncertainty treatments) - Standard deviation: 2 percentage points Outcome Variable: Percentage of revenue used for large investment projects. Stata Code: power twomeans 4 4.4, power(0.8) sd(2) Based on our assumptions above, we expect to detect a treatment effect of 20 percent of a standard deviation (0.4/2), i.e., we expect to detect a potential decrease in the percentage of revenue invested between the low and high uncertainty treatments. This requires a sample size of around 1000 respondents (400 - low uncertainty group; 400 - high uncertainty group; 200 - Control Mean Group).