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Taxes and the Efficiency Costs of Capital Distortions

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Author Info
Alfons Weichenrieder ()
Tina Klautke ()

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Abstract

Tax neutrality towards alternative financing instruments for corporate investment is a ubiquitous demand in the political debate. At the same time, the literature is surprisingly silent about the magnitude of possible efficiency costs of a departure from tax neutrality. Against this background, the present paper discusses the theory of capital structure and provides backof-the-envelope calculations of the possible efficiency cost of a tax distortion of the debtequity decision.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2431.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2431

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Related research
Keywords: debt-equity choice; capital structure; excess burden of taxation;

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Dierkens, Nathalie, 1991. "Information Asymmetry and Equity Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(02), pages 181-199, June. [Downloadable!]
  2. Huizinga, Harry & Laeven, Luc & Nicodeme, Gaetan, 2008. "Capital structure and international debt shifting," Journal of Financial Economics, Elsevier, vol. 88(1), pages 80-118, April. [Downloadable!] (restricted)
    Other versions:
  3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  4. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Zwiebel, Jeffrey, 1996. "Dynamic Capital Structure under Managerial Entrenchment," American Economic Review, American Economic Association, vol. 86(5), pages 1197-1215, December. [Downloadable!] (restricted)
  6. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  7. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July. [Downloadable!] (restricted)
  8. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March. [Downloadable!] (restricted)
  9. Ramb, Fred & Weichenrieder, Alfons J, 2005. "Taxes and the financial structure of German inward FDI," Discussion Paper Series 1: Economic Studies 2005,05, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  10. Scott, James H, Jr, 1977. "Bankruptcy, Secured Debt, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 32(1), pages 1-19, March. [Downloadable!] (restricted)
  11. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December. [Downloadable!] (restricted)
    Other versions:
  12. Julian Alworth & Giampaolo Arachi, 2001. "The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms," International Tax and Public Finance, Springer, vol. 8(4), pages 353-376, August. [Downloadable!] (restricted)
  13. Altshuler, Rosanne & Grubert, Harry, 2003. "Repatriation taxes, repatriation strategies and multinational financial policy," Journal of Public Economics, Elsevier, vol. 87(1), pages 73-107, January. [Downloadable!] (restricted)
    Other versions:
  14. Jack Mintz & Alfons Weichenrieder, 2005. "Taxation and the Financial Structure of German Outbound FDI," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  15. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March. [Downloadable!] (restricted)
  16. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July. [Downloadable!] (restricted)
  17. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March. [Downloadable!] (restricted)
  18. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring. [Downloadable!] (restricted)
  19. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  20. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(4), pages 1075-1129. [Downloadable!] (restricted)
  21. Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-44, March. [Downloadable!] (restricted)
  22. Gordon, Roger H. & Lee, Young, 2001. "Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data," Journal of Public Economics, Elsevier, vol. 82(2), pages 195-224, November. [Downloadable!] (restricted)
    Other versions:
  23. Clemens Fuest & Bernd Huber & Søren Bo Nielsen, . "Why Is the Corporate Tax Rate Lower than the Personal Tax Rate?," EPRU Working Paper Series 00-17, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  24. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May. [Downloadable!] (restricted)
  25. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier. [Downloadable!] (restricted)
    Other versions:
  26. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December. [Downloadable!] (restricted)
    Other versions:
  27. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August. [Downloadable!] (restricted)
  28. Sanford J. Grossman & Oliver D. Hart, 1982. "Corporate Financial Structure and Managerial Incentives," NBER Chapters, in: The Economics of Information and Uncertainty, pages 107-140 National Bureau of Economic Research, Inc. [Downloadable!]
  29. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ruud de Mooij & Michael P. Devereux, 2009. "Alternative Systems of Business Tax in Europe: An applied analysis of ACE and CBIT Reforms," Taxation Papers 17, Directorate General Taxation and Customs Union, European Commission. [Downloadable!]
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