The Risk of Value Extraction. The German case

To meet the challenges of our time, from climate change and digitalization to future pandemics, immenseinvestments in innovative technologies are required. To achieve this, ambitious industrial strategies and close coordination between public and private sectors are essential. However, the relationship between the latter is not necessarily built on equal premises and interests. This is particularly true for publicly traded multinational enterprises (MNEs), which are pressured to maximize shareholder value, even if that means exploiting legal gray areas, such as profit shifting. Consequently, government funds are in danger of ending up (at least indirectly) in tax havens or with shareholders. Thus, while the state tries to enable value creation, corporations might undermine this endeavor by extracting value from the economy. Drawing on the case of Germany, the COVID-19 pandemic has demonstrated that the risk of value extraction is real. After the corporate sector received government funds in various forms to overcome the crisis, many of these corporations booked profits in tax havens, and distributed billions of euros in dividends at the end of the same year (Sennholz-Weinhardt et al., 2021). Nevertheless, the corporate sector is only one side of the issue; the other is how the state enables these gray areas through inadequate legislation. This research project aims to determine whether and to what extent government funds are undermined by corporate value extraction. In other words, how much government funding are corporations receiving, and how much are the same corporations shifting to tax havens or shareholders? Moreover, what is the role of the state in this regard? To address the outlined issue, a mixed-method approach will be applied, whereby a critical political economy perspective will be combined with quantitative tax research. Furthermore, a novel firm-level database of government funds received and value extractions to tax havens and shareholders will be created.