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Taxation And Corporate Use Of Debt: Implications For Tax Policy

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  • Gordon, Roger H.

Abstract

There is growing empirical evidence showing that taxes encourage use of debt in large profitable firms and discourage it in less profitable firms. There has been debate, though, on the source of any non-tax costs from debt finance offsetting the tax advantages of debt. This paper lays out competing hypotheses, notes that the existing empirical evidence is more supportive of a “lemons” model in which lack of information about the viability of borrowing firms inhibits use of debt, and then explores how tax policy should be designed in response.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 63 (2010)
Issue (Month): 1 (March)
Pages: 151-74

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Handle: RePEc:ntj:journl:v:63:y:2010:i:1:p:151-74

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Cited by:
  1. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2011. "Capital structure choice and company taxation: A meta-study," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 11-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Florian Scheuer, 2012. "Adverse Selection In Credit Markets and Regressive Profit Taxation," NBER Working Papers 18406, National Bureau of Economic Research, Inc.
  3. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 38, Directorate General Taxation and Customs Union, European Commission.
  4. Michael Keen & Ruud A. de Mooij, 2012. "Debt, Taxes, and Banks," IMF Working Papers, International Monetary Fund 12/48, International Monetary Fund.
  5. Francesco Cohen & Alessandro Fedele & Paolo Panteghini, 2014. "Corporate Taxation and Financial Strategies Under Asymmetric Information," CESifo Working Paper Series, CESifo Group Munich 4772, CESifo Group Munich.
  6. Stefan Lutz, 2012. "Effects of taxation on European multi-nationals’ financing and profits," The School of Economics Discussion Paper Series, Economics, The University of Manchester 1214, Economics, The University of Manchester.
  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. Ruud A. de Mooij & Michael Keen & Masanori Orihara, 2013. "Taxation, Bank Leverage, and Financial Crises," IMF Working Papers, International Monetary Fund 13/48, International Monetary Fund.

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