Corporate Tax Reforms and Financial Choices: An Empirical Analysis
AbstractThis paper assesses the effects that two different types of corporate tax reforms, recently implemented in Italy by two different Governments, have had on the debt choices of companies, In order to do so, we combine the information provided by a micro-simulation corporate tax-model, with an empirical model of companies' financial choices (a modified pecking order model), and apply this analytical framework to a panel of Italian manufacturing companies. The main results suggest that: (a) the tax system affects corporate leverage both through the relative cost of debt capital, and through cash flow; (b) the first reform, which operated mainly by reducing the relative cost of equity capital and was less costly for the Government, turns out to be more effective in reducing corporate leverage.
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Bibliographic InfoArticle provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.
Volume (Year): 64 (2005)
Issue (Month): 2-3 (November)
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Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
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