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Corporate Debt, Hybrid Securities, and the Effective Tax Rate

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  • PAOLO M. PANTEGHINI

Abstract

In this article we use contingent-claim analysis to calculate the effective tax rate (ETR) under corporate debt finance. In particular, we deal with both pure debt and two of the most well-known hybrid securities, i.e., convertible, and reverse convertible bonds. We show that: 1) effective taxation crucially depends on the characteristics of debt, and 2) existing measures of ETR can be dramatically biased, since they do not account for debt maturity, default risk or the ability to convert debt into equity.

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File URL: http://hdl.handle.net/10.1111/j.1467-9779.2011.01537.x
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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 14 (2012)
Issue (Month): 1 (02)
Pages: 161-186

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Handle: RePEc:bla:jpbect:v:14:y:2012:i:1:p:161-186

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Cited by:
  1. Alessandra Del Boca & Michele Fratianni & Franco Spinelli & Carmine Trecroci, 2008. "The Phillips Curve and the Italian Lira, 1861-1998," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2008-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2009. "Competitive Markets with Private Information on Both Sides," Working Papers, University of Brescia, Department of Economics 0917, University of Brescia, Department of Economics.
  3. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains taxation in the real world," Working Papers, University of Brescia, Department of Economics 0910, University of Brescia, Department of Economics.
  4. Alessandro Fedele & Paolo Panteghini & Sergio Vergalli, 2010. "Optimal Investment and Financial Strategies under Tax Rate Uncertainty," CESifo Working Paper Series 3017, CESifo Group Munich.
  5. Monica Billio & Roberto Casarin, 2010. "Bayesian Estimation of Stochastic-Transition Markov-Switching Models for Business Cycle Analysis," Working Papers, University of Brescia, Department of Economics 1002, University of Brescia, Department of Economics.
  6. Alberto Bisin & John Geanakoplos & Piero Gottardi & Enrico Minelli & Herakles Polemarchakis, 2010. "Markets and contracts," Economics Working Papers, European University Institute ECO2010/29, European University Institute.
  7. Raffaele Miniaci & Paolo Panteghini & Maria Laura Parisi, 2011. "Debt shifting in Europe," Working Papers, Oxford University Centre for Business Taxation 1121, Oxford University Centre for Business Taxation.
  8. Alessandro Fedele & Francesco Liucci & Andrea Mantovani, 2009. "Credit availability in the crisis: the European investment bank group," Working Papers, University of Brescia, Department of Economics 0913, University of Brescia, Department of Economics.
  9. Alessandro Fedele & Raffaele Miniaci, 2009. "Do social enterprises finance their investments differently from for-profit firms? The case of social residential services in Italy," Working Papers, University of Brescia, Department of Economics 0911, University of Brescia, Department of Economics.
  10. Rosella Levaggi & Francesco Menoncin, 2009. "Decentralized provision of merit and impure public goods," Working Papers, University of Brescia, Department of Economics 0909, University of Brescia, Department of Economics.

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