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Effects of Tax Rate Changes on the Cost of Capital: The Case of Japanese Firms

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  • Keiichi Kubota
  • Hitoshi Takehara
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    Abstract

    The paper studies the effects that tax rate changes have on the cost of capital when firms follow target leverage ratios. We show that changes in individual income tax rates are neutral. The focus therefore is on the effects of changes in marginal corporate tax rates. These effects are computed for Japanese firms. Special emphasis is given to changes in statutory tax rates and provisions that allow firms to carry their losses forward.

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    File URL: http://www.ingentaconnect.com/content/mohr/fa/2007/00000063/00000002/art00001
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    Bibliographic Info

    Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

    Volume (Year): 63 (2007)
    Issue (Month): 2 (June)
    Pages: 163-185

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    Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200706)63:2_163:eotrco_2.0.tx_2-c

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    Web page: http://www.mohr.de/fa

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    Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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    Related research

    Keywords: cost of capital; effective marginal tax rates in Japan; Miller equilibrium; Graham's simulation method; loss carry-forward;

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    Cited by:
    1. Kunieda, Shigeki & Takahata, Junichiro & Yada, Haruna, 2011. "Japanese Firms’ Debt Policy And Tax Policy," Discussion Papers 2011-11, Graduate School of Economics, Hitotsubashi University.

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