Does capital bear the burden of local corporate taxes? Evidence from Germany

Exploiting the German 2008 tax reform we employ an event study design to assess the effects of local corporate taxes on stock prices. We match firms to the local tax rates at their respective headquarters and analyze the differential stock market responses to the reform decision. We find that firms which are located in high tax jurisdictions and therefore face a possible high tax reduction significantly outperform firms in low tax jurisdictions during the decision-making process. The results indicate that firm owners partially bear the burden of local corporate taxes.