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

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  • Daniel Klein
  • Christopher A. Ludwig
  • Christoph Spengel

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 US firms. Investor reaction is stronger for firms that engage more in tax avoidance and for those with higher European Union 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.

Suggested Citation

  • Daniel Klein & Christopher A. Ludwig & Christoph Spengel, 2022. "Taxing the Digital Economy: Investor Reaction to the European Commission’s Digital Tax Proposals," National Tax Journal, University of Chicago Press, vol. 75(1), pages 61-92.
    • Handle: RePEc:ucp:nattax:doi:10.1086/717518
    DOI: 10.1086/717518
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    Cited by:

    1. Pavel Peterka & Dominik Stroukal, 2024. "Evidence Against the Undertaxation of Digital Companies from the Weighted Effective Tax Rate Method Analysis," International Journal of Economic Sciences, European Research Center, vol. 13(1), pages 58-80, May.
    2. Chen, Xuyang & Hindriks, Jean, 2023. "Multinational Taxation under Pressure: The Role of Tax Deductibility," LIDAM Discussion Papers CORE 2023013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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