Private Equity and Local Public Finances

73 Pages Posted: 27 Dec 2018 Last revised: 25 Apr 2022

See all articles by Marcel Olbert

Marcel Olbert

London Business School - Department of Accounting; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research

Peter Severin

University of Mannheim; University of Mannheim

Date Written: April 23, 2022

Abstract

We study the economic impact of private equity investments on local governments, which are important corporate stakeholders. Examining over 12,000 deals and private firm data in Europe, we document that target firms' effective tax rates and total tax expenses decrease by 15% and 12% after deals. At the same time, target firms invest more in human and physical capital. Using administrative data from Germany and exploiting the staggered nature of deals at the local level, we document that private equity activity is negatively associated with tax revenues and the spending of local governments and triggers creative destruction within the local economy. Collectively, our findings suggest that corporate tax avoidance serves as a cost-cutting channel in the private equity sector and constrains the finances of local governments.

Keywords: Private Equity, Leveraged Buyouts, Investments, Tax Avoidance, Public Finances

JEL Classification: G31, G34, H25, H26, H70

Suggested Citation

Olbert, Marcel and Severin, Peter and Severin, Peter, Private Equity and Local Public Finances (April 23, 2022). Available at SSRN: https://ssrn.com/abstract=3287687 or http://dx.doi.org/10.2139/ssrn.3287687

Marcel Olbert

London Business School - Department of Accounting ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

United States

Peter Severin (Contact Author)

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

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