Taxing the Digital Economy: Investor Reaction to the European Commission’s Digital Tax Proposals

National Tax Journal, Volume 72, No. 1, March 2022.

43 Pages Posted: 6 Dec 2019 Last revised: 7 Feb 2023

See all articles by Daniel Klein

Daniel Klein

University of Mannheim - Accounting and Taxation

Christopher Ludwig

University of Mannheim; ZEW – Leibniz Centre for European Economic Research

Christoph Spengel

University of Mannheim - Accounting and Taxation; Centre for European Economic Research (ZEW)

Date Written: September 30, 2021

Abstract

This study analyzes investor reaction to the European Commission’s proposals on the taxation of digital firms. Examining the stock returns of potentially affected firms surrounding the proposals’ release, we find a significant abnormal capital market reaction of -0.692 percent. This corresponds to an absolute market value reduction of more than 52 billion euros, 40 percent of which is attributable to U.S. firms. Investor reaction is stronger for firms that engage more in tax avoidance and for those with higher EU exposure. Overall, investors perceive the event as a threat to digital firms’ future profitability and react in line with the proposals’ intentions to secure tax revenues and to extract location-specific rent.

Keywords: digital taxation, corporate tax, digital economy, event study

JEL Classification: H25, H26, K34, G14

Suggested Citation

Klein, Daniel and Ludwig, Christopher and Spengel, Christoph, Taxing the Digital Economy: Investor Reaction to the European Commission’s Digital Tax Proposals (September 30, 2021). National Tax Journal, Volume 72, No. 1, March 2022., Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3498183

Daniel Klein (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Christopher Ludwig

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Christoph Spengel

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

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