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Tobias Hentze / Galina Kolev Expertise 10. June 2021 Economic Effects of the BDI tax model for the future

In international comparison, Germany is a high-tax country. Since the corporate tax reform in 2008, the burden has increased while many other countries have lowered tax rates.

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Economic Effects of the BDI tax model for the future
Tobias Hentze / Galina Kolev Expertise 10. June 2021

Economic Effects of the BDI tax model for the future

Gutachten im Auftrag des Bundesverbands der Deutschen Industrie e. V. (BDI)

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German Economic Institute (IW) German Economic Institute (IW)

In international comparison, Germany is a high-tax country. Since the corporate tax reform in 2008, the burden has increased while many other countries have lowered tax rates.

At 22.1 percent (EU-28 countries) and 23.5 percent (OECD), the average tax burden in most other countries in 2020 was well below the value in Germany of 30 percent. Due to the local business tax, the corporate tax burden ranges up to 36 percent in some regions. In addition, there is the solidarity surcharge as a surcharge on corporate income tax, which is still effective. The implementation of political projects in the UK and the USA to partially reverse tax cuts from the past would not change anything in the assessment of Germany as a high-tax country. It should also be acknowledged that Germany does not offer any special tax breaks (e.g., no patent box), so that the effective tax rate largely corresponds to the nominal tax rate. Against this background, the Federation of German Industry (BDI) has introduced a “tax model of the future”. The key points are a reduction in the corporate tax rate by 5 percentage points and the abolition of the solidarity surcharge that is still applied to companies. A simulation using the GEM model from Oxford Economics shows that such a tax reform would not only have positive effects on economic growth, but also on private investment and employment. Within ten years, the additional demand for investment and consumer goods would exceed the government's shortfall in revenue by 33 billion euros. The reform would be fiscally suitable and within ten years around a third would be self-financing through additional tax revenues. The government debt ratio in 2030 would only be 3.6 percentage points higher than without the tax relief described. Thus, the soundness of public finances would not be at risk, but the economy would be remarkably stimulated by the tax reform.

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Economic Effects of the BDI tax model for the future
Tobias Hentze / Galina Kolev Expertise 10. June 2021

Wirtschaftliche Effekte des BDI-Steuermodells der Zukunft

Gutachten im Auftrag des Bundesverbands der Deutschen Industrie e. V. (BDI)

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German Economic Institute (IW) German Economic Institute (IW)

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Martin Beznoska / Christian von Haldenwang / Ruth Maria Schüler IW-Report No. 34 13. June 2022

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