Taxing away M&A: Capital gains taxation and acquisition activity

Research output: Contribution to journal › Article › Research › peer review

Authors

  • Maximilian Todtenhaupt
  • Johannes Voget
  • Lars P. Feld
  • Martin Ruf
  • Ulrich Schreiber

External Research Organisations

  • Norwegian School of Economics (NHH)
  • NoCeT
  • Ludwig-Maximilians-Universität München (LMU)
  • University of Mannheim
  • Centre for European Economic Research (ZEW)
  • University of Freiburg
  • Walter Eucken Institute
  • University of Tübingen
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Details

Original languageEnglish
Article number103505
JournalEuropean economic review
Volume128
Early online date23 Jun 2020
Publication statusPublished - Sept 2020
Externally publishedYes

Abstract

Capital gains taxation distorts the market for corporate control by imposing a cost on selling shareholders in acquisitions. This lock-in effect increases premiums required for deal completion preventing some M&As from taking place at all. We estimate the effect of capital gains taxation on the quantity of realized M&A deals and compute the deadweight loss related to taxing these transactions. We find that a one percentage point increase in the capital gains tax rate reduces acquisition activity by around 1% annually. For the United States, this implies unrealized synergy gains of $9.3 billion each year due to capital gains taxes.

Keywords

    Capital gains tax, Lock-in effect, M&A

ASJC Scopus subject areas

Cite this

Taxing away M&A: Capital gains taxation and acquisition activity. / Todtenhaupt, Maximilian; Voget, Johannes; Feld, Lars P. et al.
In: European economic review, Vol. 128, 103505, 09.2020.

Research output: Contribution to journal › Article › Research › peer review

Todtenhaupt, M., Voget, J., Feld, L. P., Ruf, M., & Schreiber, U. (2020). Taxing away M&A: Capital gains taxation and acquisition activity. European economic review, 128, Article 103505. https://doi.org/10.1016/j.euroecorev.2020.103505
Todtenhaupt M, Voget J, Feld LP, Ruf M, Schreiber U. Taxing away M&A: Capital gains taxation and acquisition activity. European economic review. 2020 Sept;128:103505. Epub 2020 Jun 23. doi: 10.1016/j.euroecorev.2020.103505
Todtenhaupt, Maximilian ; Voget, Johannes ; Feld, Lars P. et al. / Taxing away M&A : Capital gains taxation and acquisition activity. In: European economic review. 2020 ; Vol. 128.
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