Private Equity and Taxes

55 Pages Posted: 27 Dec 2018 Last revised: 11 Jun 2021

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: June 10, 2021

Abstract

We study corporate tax avoidance and associated real effects of private equity buyouts.
Exploiting over 12,000 deals and private firm data in Europe, we document that target firms' effective tax rates decrease by 15% after the buyout. Those targets engaging in significant post-deal tax avoidance invest less in physical assets and employment, suggesting that corporate tax avoidance serves as a cost-cutting channel for buyouts with moderate growth potential. Exploiting the staggered nature of buyouts at the local geographic and industry levels, we document that private equity ownership negatively impacts corporate tax revenues as well as industry-wide effective tax rates and tax payments without creating positive spillovers for other tax bases. Collectively, our findings suggest that some private equity investors impose a negative externality on local domestic governments through increased tax avoidance in target firms.

Keywords: Private Equity, Leveraged Buyouts, Corporate Taxation, Investments, Tax Avoidance, Tax Revenue

JEL Classification: G31, G34, H26

Suggested Citation

Olbert, Marcel and Severin, Peter and Severin, Peter, Private Equity and Taxes (June 10, 2021). 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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